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HQ 957644




June 21, 1995

CLA-2 R:C:T 957644 CMR

CATEGORY: CLASSIFICATION

TARIFF NO.: 5705.00.2010

District Director
U.S. Customs Service
10 Causeway Street
Room 603
Boston, MA 02222-1059

RE: Protest 0401-94-100635 with Application for Further Review; Classification and Appraisement of wool needlepoint rugs

Dear Mr. Linde:

This is in response to a protest timely filed by Sullivan & Lynch, P.C., on behalf of their client, xxxxxxxxxxxxx xxxxxx xxxxxxx xxxx, against your liquidation of twelve entries of wool needlepoint rugs as other wool textile floor coverings in subheading 5705.00.2010, Harmonized Tariff Schedule of the United States Annotated (HTSUSA). The subject merchandise was entered as handwoven wool rugs of subheading 5702.10.9010, HTSUSA. Protest is also made against Customs' appraisement of three of the entries.

FACTS:

The merchandise at issue consists of wool needlepoint rugs. This office did not receive a sample. Therefore, the description of the merchandise is based upon that provided by the counsel for the importer, the protest documents, a June 28, 1994 letter from the importer to Customs, and the description provided in the report by the National Import Specialist who reviewed this protest. The rugs at issue are constructed of a 100 percent cotton open mesh canvas and 100 percent wool yarns. The open mesh canvas has either 100 holes per square inch (10 X 10 mesh) or 49 holes per square inch (7 X 7 mesh). The wool yarns are looped through every hole to cover the entire canvas to form a flat covered surface and create the desired designs.

Counsel for the importer submits that his client purchases the subject merchandise under CIF Boston terms. He states the protest of the appraisement of three entries is based upon the failure of the Customhouse Broker to deduct the non-dutiable -2-
costs of marine insurance and international freight from the invoiced price to arrive at the proper entered value for the merchandise entered under three consumption entries. Copies of the ocean freight bill for the shipments at issue were submitted as a supplement to this protest.

ISSUE:

Is needlepoint a form a weaving?

Are the needlepoint rugs at issue classifiable as handwoven rugs of heading 5702, HTSUSA, or, are they classifiable as other textile floor coverings of heading 5705, HTSUSA?

Should the costs of marine insurance and international freight be deducted from the invoice price to determine the entered value for purposes of duty assessment?

LAW AND ANALYSIS:

Classification of goods under the HTSUSA is governed by the General Rules of Interpretation (GRIs). 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 GRIs taken in order]."

Classification of the merchandise at issue, wool needlepoint rugs, turns on whether needlepoint is a form of weaving. Counsel for the importer argues that the subject goods are classifiable as handwoven rugs of subheading 5702.10.9010, HTSUSA, because the articles are produced by hand and, he claims, needlepoint is a form of weaving. Counsel points to the Explanatory Notes (EN) to the Harmonized Commodity Description & Coding System, the official interpretation of the tariff at the international level, to make his argument.

Counsel for the importer focuses on language in the EN for heading 5702 addressing "Kelem", "Schumacks", "Karamanie" and similar handwoven rugs. The EN state that Kelem rugs are "obtained by the same method of manufacture as the hand-woven tapestries described in the Explanatory Note to heading 58.05, Part (A)." The EN goes on to discuss the construction of these various handwoven rugs in terms of warp and weft threads.

The EN for heading 5805, at Part (A), describes handwoven tapestries as being produced "by stretching warp threads on a weaving loom and interlacing weft threads of different colours which cover the warp, produce the designs and also form the woven fabric." Counsel for the importer errs in his reading of the EN by broadening the reference to the EN for heading 5805, Part (A), -3-
in the EN for heading 5702 to include needlepoint (which would fall under the EN for heading 5805, Part (B)). The EN for heading 5805, Part (B) discusses needle-worked tapestries. Counsel has somehow read Part (B) of the EN to include language at the end of the EN which applies to the entire heading (goods described in Parts (A) and (B)) and thus tries to argue that the exclusion for "Kelem, Schumacks, Karamanie and similar rugs" is meant to include needlepoint rugs.

Customs does not find support for counsel's position in the EN. Nor does Customs agree that needlepoint is a form of weaving. The EN for headings 5702 and 5805, Part (A), discuss the handwoven goods within the scope of these headings in terms of warp and weft construction and interlacing of the warp and weft yarns.

Weaving is defined in The Modern Textile and Apparel Dictionary, by George E. Linton (1973), at page 653, as:

The interlacing at right angles of two systems of threads known as warp or filling [weft]. The former runs lengthwise and may go over or under the latter, which runs crosswise.

The Man-made Fiber and Textile Dictionary, by the Celanese Corporation (1974), at page 130, defines weaving as:

The method or process of interlacing two yarns of similar materials so that they cross each other at right angles to produce woven fabric. The warp yarns, or ends, run lengthwise in the fabric, and the filling threads (weft), or picks, run from side to side. Weaving may be done on a power or hand loom or by several hand methods. (also see LOOM and WOVEN FABRIC.)

Lastly, A Dictionary of Textile Terms by Dan River (1980), at page 119, defines weaving as:

The process of forming a fabric on a loom by interlacing the warp (lengthwise yarns) and the filling (crosswise yarns) with each other. Filling is fed into the goods from cones, filling bobbins or quills which carry the filling picks through the shed of the loom. Filling may also be inserted into the material without the use of a shuttle, as in the case of a shuttleless loom. The three basic weaves are Plain, Twill, and Satin. All other weaves, no matter how intricate, employ one or more of these basic weaves in their composition. * * *

The definition then goes on and names the most common weave constructions. Needlepoint is not among them. In fact, from the -4-
same source, at page 67, we find needlepoint defined as:

Simple stitch embroidery completely covering a mesh or canvas ground.

Based upon the description of the merchandise gleaned from the various documents in the protest file, it is Customs belief that the goods at issue are not produced by an interlacing of warp and weft threads to form a fabric. We do not believe the goods are produced in a manner which fits any of the above descriptions of weaving. Therefore, we do not believe these goods are woven. Instead, Customs finds the goods are produced by utilization of a type of stitch generally considered an embroidery stitch upon a finished fabric (the open mesh canvas) to create the needlepoint rugs.

As the goods are not woven, they cannot be classified in heading 5702, which provides for woven carpets and other woven textile floor coverings, not tufted or flocked. Counsel's resort to GRI 4 which directs classification of goods in a heading describing goods to which they are akin is misplaced and unnecessary. Chapter 57 contains a heading in which the subject goods are described, that is, heading 5705, which provides for other carpets and other textile floor coverings, whether or not made up. As the goods meet this description, based upon GRI 1, they are classifiable in heading 5705.

Counsel for the importer argues for an alternative classification in heading 5805 as a hand woven tapestry. He states the imported merchandise can be hung on a wall or used as a floor covering and that the merchandise is more specifically described as a "tapestry" than a "carpet".

Note 1, Chapter 57, states:

For the purposes of this chapter, the term "carpets and other textile floor coverings" means floor coverings in which textile materials serve as the exposed surface of the article when in use and includes articles having the characteristics of textile floor coverings but intended for use for other purposes.

The merchandise at issue has the characteristics of textile floor coverings. In addition, the entry documents, the June 28, 1994 letter from the importer to Customs, and other documents in the protest file, clearly indicate the importer recognizes the goods as rugs, that is, as floor coverings. The goods are therefore specifically described in heading 5705.

With respect to the appraisement issue raised in the protest, as you are aware, the preferred method of appraisement -5-
is the transaction value pursuant to section 402(b) of the Tariff Act of 1930, as amended by the Trade Agreement Act of 1979 (TAA), codified at 19 U.S.C. 1401a. Section 402(b)(1) of the TAA provides, in pertinent part, that the transaction value of imported merchandise is the "price actually paid or payable for the merchandise when sold for exportation to the United States" plus enumerated statutory additions.

The "price actually paid or payable" is defined in section 402(b)(4)(A) of the TAA as the "total payment (Whether direct or indirect, and exclusive any costs, charges, or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise...) made or to be made, for the imported merchandise by the buyer to, or for the benefit of, the seller."

In this case, the Protestant contends that the subject merchandise was purchased under CIF Boston terms, and that the cost of marine insurance and international freight should have been deducted from the price to arrive at the proper entered value. However, due to inadvertence when entering the merchandise the Customshouse broker neglected to deduct the non- dutiable freight and insurance costs from the invoice price for the merchandise.

In HRL 544538, issued December 17, 1992, Customs acknowledged that pursuant to 402(b)(4)(A) the cost of international transportation is to be excluded from the price actually paid or payable for imported merchandise. However, Customs explained that in determining the cost of international transportation or freight, it always looked to documentation from the freight company, as opposed to the documentation between the buyer and the seller which often contains estimated freight costs or charges. In essence, Customs requires documentation from the freight company because the actual cost, and the estimated charges, for the freight is payable.

In the instant case, the commercial invoice from China Artex Holdings Corporation Shandong Company to International Direct Imports Inc., states that the transaction was "CIF BOSTON". The Protestant submitted documents from American President Lines, which indicate the actual ocean freight charges for the shipments in question. They are:

Entry Number Ocean Freight Charge
xxx-xxxxxxx-x $ 517.44
xxx-xxxxxxx-x $ 401.80
xxx-xxxxxxx-x $ 1018.22 -6-

Customs has recognized the differences between FOB and CIF shipment terms with regard to the treatment of freight charges. In particular, "Free on Board" means that the seller fulfills his obligation to deliver when the goods have passed over the ship's rail at the named port of shipment. This means that the buyer has to bear all costs and risk of loss or damage to the goods from that point. On the other hand, "Cost Insurance and Freight" means that the seller is obligated to pay the costs and freight necessary to bring the goods to the named port of destination, as well as to procure and pay for marine insurance against the buyer's risk or loss or damage to the goods during the carriage. See International Chamber of Commerce, Incoterms, 38, 44 and 50 (1990).

Based on this understanding of FOB and CIF terms, Customs considers freight charges to be included in the CIF price for goods, but considers such charges to be separate from the FOB price for goods. Accordingly, we consider the CIF price for the merchandise at issue to include the freight charges as agreed upon by the parties. The amount actually paid to the freight company is to be excluded from the price actually paid or payable for the merchandise. Here the Protestant has furnished documentation from the shipping company, American Presidential Lines, regarding the actual freight costs for the shipments in question. Accordingly, absence evidence to the contrary, these amounts should be excluded from the transaction value of the imported merchandise. Therefore, the documented freight charges should be deducted from the price actually paid or payable to arrive at the transaction value for imported merchandise.

As the Protestant failed to submit documentation regarding the cost of marine insurance, Customs has no basis for determining the amount to be deducted.

HOLDING:

The needlepoint rugs at issue are classifiable as wool textile floor coverings in subheading 5705.00.2010, HTSUSA, textile category 465. At the time of entry, goods classified in this provision were dutiable at 6.5 percent ad valorem.

The submitted protest should be denied in part and granted in part to accord with the above.

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 mailed by your office to the protestant no later than 60 days from 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 -7-
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
Commercial Rulings Division

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