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HQ 561054




September 23, 1999

CLA-02 RR:TC:SM 561054 KKV

CATEGORY: CLASSIFICATION

TARIFF NO.: 9802.00.8040

Port Director
P.O. Box 025280
6601 N.W. 25th Street
Miami, FL 33102-5280

RE: Application for Further Review of Protest No. 5201-97-100827; applicability of duty exemption under U.S. Note 2(b), subchapter II, Chapter 98, HTSUS to certain headwear; CBI (II); CBERA; T.D. 91-88; textile category code is controlling factor

Dear Sir or Madam:

The above-referenced protest, timely filed by counsel on behalf of Gakdr Styles, Inc., concerns the applicability of the duty exemption provided in U.S. Note 2(b), subchapter II, Chapter 98, of the Harmonized Tariff Schedule of the United States (HTSUS), to a shipment of hats. Protestant is challenging the classification of the merchandise under subheading 9802.00.80, HTSUS, and the assessment of duty upon a portion of the value, in connection with the importation of 1,085 cartons of headwear entered at the port of Miami on August 27, 1996. Protestant argues that the assessment of duties in the amount of $666.13 is erroneous because the merchandise is entitled to the duty exemption provided by U.S. Note 2(b), subchapter II, Chapter 98, HTSUS.

FACTS:

The record indicates that a shipment of children’s headwear was entered at the Port of Miami on August 27, 1996. The imported merchandise consisted of 61 styles of headwear assembled in the Dominican Republic, three of which contained minor components of non-U.S. origin. The remaining 58 styles, each of which falls into one of the following 11 categories, was assembled entirely from components which were the product of the United States:

Headwear Type Components of U.S. Origin

Open Pleated crown, brim, lining, lace, embroidery, elastic ribbon

Closed Pleated crown, brim, tip, lining, lace, embroidery, elastic, ribbon

Tyrol crown, brim, ribbon, velcro lining and, in some cases, an earlap

Baby Cap crown, brim, lining

Horseshoe crown, brim, lining, lace, embroidery, elastic, ribbon

Heart Horseshoe crown, brim, lining, lace, embroidery, elastic, ribbon

Star Back crown, brim, lining, lace, embroidery, elastic, ribbon

Patch Earlap crown, lining, earlap

Jockey crown, brim lining, lace

Off Face crown, brim lining, lace

Pill Box crown, brim lining, and in some cases, lace

Customs determined that the imported merchandise, classified under subheadings 6505.90.20, 6505.90.70 and 6505.90.80, HTSUS, was eligible for preferential tariff treatment under subheading 9802.00.80, HTSUS, as “articles assembled abroad in whole or in part of fabricated components, the product of the United States, which (a) were exported in a 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 (c) have not been advanced in value or improved in condition abroad except by being assembled and except by operations incidental to the assembly process.” Accordingly, duty in the amount of $666.13 was assessed on the amount remaining after the cost of the U.S. components was subtracted from the full value of the imported headwear, at the applicable rate pursuant to subheadings 6505.90.25, 6505.90.70 and 6505.90.80, HTSUS, as appropriate. Protestant asserts that the assessment of duties in the amount of $666.13 is erroneous because the 58 styles of headwear are entitled to the complete duty exemption provided by U.S. Note 2(b), subchapter II, Chapter 98, HTSUS.

ISSUE:

Whether the subject headwear assembled in the Dominican Republic from U.S. components is eligible for dutyfree treatment under U.S. Note 2(b), subchapter II, Chapter 98, HTSUS.

LAW AND ANALYSIS:

Section 222 of the Customs and Trade Act of 1990 (P.L. 101382) amended U.S. Note 2, subchapter II, Chapter 98, HTSUS, ("Note 2(b)") to provide for dutyfree treatment of articles, other than certain specified products, which are assembled or processed in a Caribbean Basin Economic Recovery Act (CBERA) beneficiary country (BC) wholly of fabricated components or ingredients (except water) of U.S. origin. This amendment was effective with respect to goods entered on or after October 1, 1990.

Specifically, Note 2(b) provides that:

(b) No article (except a textile article, apparel article, or petroleum, or any product derived from petroleum, provided for in heading 2709 or 2710) may be treated as a foreign article, or as subject to duty, if

(i) the article is

(A) assembled or processed in whole of fabricated components that are a product of the United States, or

(B) processed in whole of ingredients (other than water) that are a product of the United States, in a beneficiary country; and

(ii) neither the fabricated components, materials or ingredients, after exportation from the United States, nor the article itself, before importation in the United States, enters the commerce of any foreign country other than a beneficiary country.

As used in this paragraph, the term "beneficiary country" means a country listed in General Note 7(a), HTSUS. Pursuant to General Note 7(a), HTSUS, the Dominican Republic been designated as a BC for CBERA purposes. Note 2(b) specifies four categories of products which are excluded from dutyfree treatment under this provision: textile articles; apparel articles; petroleum; and certain products derived from petroleum.

Protestant alleges that the subject headwear should not be considered as “textile articles” or “apparel articles” for purposes of Note 2(b) and, in support of its position, cites Treasury Decision (T.D.) 91-88, 25 Cust. Bull. 226, asserting that Congress intended to exclude only certain articles from eligibility for duty-free treatment under Note 2(b). Like the ‘footwear and parts of footwear’ at issue in T.D. 91-88, supra, which Customs noted were not classified in Section XI (entitled Textiles and Textile Articles), HTSUS, the subject headwear is also classified in Section XII, HTSUS. For this reason, the Protestant claims that headwear should be treated no differently than footwear for purposes of Note 2(b).

T.D. 91-88, supra, discussed the eligibility of footwear and parts of footwear for duty-free treatment under U.S. Note 2(b), HTSUS. Customs held that, when determining whether a article is a “textile article” or “apparel article” for purposes of Note 2(b), the “controlling factor” is whether such articles are subject to textile agreements. However, based upon the legislative history of section 222 and the treatment under the tariff provisions of the HTSUS, Customs determined that footwear and parts of footwear are not “textile” and “apparel” articles and, therefore, are eligible for preferential tariff treatment under Note 2(b), regardless of whether these articles are subject to textile agreements.

This conclusion was reached upon an examination of Congressional intent as exhibited by the legislative history. In particular, Customs found that while the Senate bill report relating to section 222 specifically included “footwear” and “textiles and apparel” as separate categories in its listing of excluded merchandise, the subsequent conference agreement did not, applying the exclusion only to petroleum, petroleum products, and textiles and apparel. Therefore, Customs concluded that, “in view of the final conference agreement which eliminated footwear from the list of precluded articles, there was a clear expression of Congressional intent to allow duty-free treatment under Note 2 (b) to articles of footwear.” See T.D. 91-88, supra, citing Report 101-650, 101st Cong. 2nd Sess., reprinted in 1990 U.S. Code Cong. and Ad. News 928, 1023.

As additional evidence of Congressional intent, Customs considered the separate tariff treatment accorded to footwear versus textile and apparel articles under the HTSUS, as well as the historical distinction between these two categories of goods in other trade
programs, namely the Generalized System of Preferences (GSP) (19 U.S.C. 2463) and the CBERA (19 U.S.C. 2703), both of which specify “textile and apparel articles” as one category of excluded products and “footwear” as another separate category.

The headwear at issue is classified under subheadings 6505.90.20, 6505.90.70 and 6505.90.80, HTSUS, which the protestant does not dispute. Articles classified under these subheadings are subject to textile agreements, as denoted by the inclusion of textile category numbers (239) and (659) in these tariff provisions. As per the holding set forth in T.D. 91-88, supra, upon which the protestant relies, this is the controlling factor in determining whether merchandise is a “textile” or “apparel” article subject to exclusion under Note 2(b). While headwear articles, like “footwear and parts of footwear” are not classified in section XI, HTSUS, together with other “Textiles and Textile articles,” we note that in T.D. 91-88, supra, separate treatment under the HTSUS was not, by itself, conclusive of Congressional intent on this issue; rather, it was but one of a number of factors which were held to be demonstrative of Congressional intent that “footwear and parts of footwear” were not “textile” or “apparel” articles. Unlike the “footwear and parts of footwear” at issue in T.D. 91-88, supra, we are unable to identify a similar clear expression of Congressional intent that articles of headwear should be treated as a separate category from “textiles and apparel articles” for purposes of Note 2(b).

As indicated above, the subject headwear articles, classified under subheadings 6505.90.20, 6505.90.70 and 6505.90.80, HTSUS, are subject to textile agreements and therefore, are ineligible for duty-free treatment under Note 2(b) pursuant to T.D. 91-88. Accordingly, the protest should be denied in full.

HOLDING:

Headwear articles classified under subheadings 6505.90.20, 6505.90.70 and 6505.90.80, HTSUS, are subject to textile agreements and therefore, are ineligible for duty-free treatment under Note 2(b). Accordingly, the protest should be denied in full.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550065, dated August 4, 1993, Subject: Revised Protest Directive, this decision, together with the Customs Form 19, 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 days from the date of this decision, the Office of Regulations and Rulings will take steps to make this decision available to Customs personnel and to the public via the Customs Home Page on the World Wide Web (www.customs.treas.gov), the Freedom of Information Act, and other public distribution channels.

Sincerely,

John Durant

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