HQ 562130 - AFR; Protest No. 5201-01-100208; NAFTA Eligibility; liquidation; Keystone Imports; apparel; - United States International Trade Commision Rulings

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HQ 562130

January 7, 2002

CLA-2 RR:CR:SM 562130 TJM

CATEGORY: CLASSIFICATION

Thomas S. Winkowski
Port Director
U.S. Customs Service
909 SE 1st Avenue
Rm 980
Miami, FL 33131

RE: AFR; Protest No. 5201-01-100208; NAFTA Eligibility; liquidation; Keystone Imports; apparel;

Dear Port Director:

The above referenced protest was forwarded to this office for further review. We have considered the evidence provided, and the points raised by your office and the protestant. Our decision follows.

FACTS:

On June 4, 1998, June 30, 1998, August 3, 1998, September 16, 1998, October 16, 1998, and December 29, 1998, Keystone Imports (U.S. importer) entered various apparel products. These entries were liquidated on November 3, 2000, with rate advances. Keystone Imports, represented by Sandler, Travis & Rosenberg, filed a timely protest concerning the liquidation and rate advance of these entries.

The following includes information on the entries and their respective extensions and liquidations.

Entry Number
Entry Date
First Extension
Expiration of First Extension
Second Extension
Expiration of Second Extension
Liquidation xxx-xxxxx334
12/29/98
01/30/99
12/29/00
09/03/00
12/29/01
11/03/00 xxx-xxxxx701
06/30/98
07/25/98
06/30/00
04/26/00
06/30/01
11/03/00 xxx-xxxxx851
06/04/98
07/25/98
06/04/00
04/26/00
06/04/01
11/03/00 xxx-xxxxx857
08/03/98
08/22/98
08/03/00
04/02/00
08/03/01
11/03/00 xxx-xxxxx481
09/16/98
10/31/98
09/16/00
11/13/00 xxx-xxxxx836
10/16/98
11/14/98
10/16/00
09/03/00
10/16/01
11/03/00

These entries covered men’s and women’s cotton shirts imported into the U.S. from Mexico. The apparel articles were allegedly produced in and exported from Mexico by Confecciones Y Disenos Textiles of Yucatan, Mexico.

On May 17, 2000, Customs issued a Request for Information (CF 28) to the Mexican exporter. The CF 28 stated:

You have indicated an “A” in block 7 of the certificate of origin. Under the NAFTA rules this would mean 100% of all material used in the production originate in a NAFTA territory. In order to substantiate the NAFTA claim for the merchandise entered on the above entry. . .please submit the following: 1) Listing of materials used in the manufacture of the originating garments (e.g. fabric; yarn; trim items; etc.). 2) Names and addresses of the suppliers of these materials. 3) Certificate of origin and/or manufacturer’s affidavits, with the style numbers, for material considered originating. 4) A listing of the production/manufacturing processes of the originating garments (e.g. knitting/weaving of yarn; manufacture of fabric; cutting of fabric etc.). 5) Names and locations of companies performing these processes. Response is due within 30 days.

The Customs copy of the CF 28 indicates that the deadline to provide the requested information was extended to July 10, 2000, because the exporter encountered problems contacting its suppliers.

On July 6, 2000, the exporter responded to Customs’ request, although the information provided was incomplete. Accordingly, on July 12, 2000, Customs issued another Request for Information (CF 28). This Request noted that the exporter’s July 6, 2000, response to the previous Customs Request for Information (issued on May 17, 2000) was incomplete. The July 12, 2000, CF 28 stated:

In your response dated 7-6-00 the following is still required within 20 days (no additional extensions) or your claim for NAFTA preferential treatment will be denied; 1) Listing of materials used in manufacture of garments did not include yarn. Respectively, please provide origin, name, address of suppliers for this items. [sic] 2) Affidavits with style number from manufacture’s [sic] for all material considered originating (i.e. yarn, fabric). 3) A listing of production & manufacturing processes performed on originating garments (i.e. knitting/weaving of yarn, manuf. of fabric, cutting of fabric, etc.) & names & addresses of companies performing these processes. Specification sheets provided do not satisfy the request.

The exporter responded with additional information, but again it was incomplete. Therefore, on August 30, 2000, Customs issued a Proposed Rate Advance (CF 29) to the exporter. The CF 29 stated:

Pursuant to your response to request for information issued July 12, 2000, the following information is still necessary: Provision of name & location of supplier for yarn and fabric, affidavits certifying the origin of the yarn & fabric from supplier (with style numbers) & a listing for all production and manufacturing processes performed on originating garment (for e.g. knitting/weaving of yarn, manufacture of fabric, cutting of fabric etc) and names & addresses of companies performing these processes. Failure to provide requested information will result in the denial of NAFTA claim for preferential treatment. Response is due in twenty days.

On September 20, 2000, Customs issued a Notice of Action (CF 29) informing the Mexican exporter that the NAFTA origin claim for the entries mentioned above would be denied. Customs also provided a copy of the CF 29 to the U.S. importer of record (the protestant). It stated, in pertinent part, that:

Pursuant to Article 506 of the North American Free Trade Agreement (NAFTA), the United States Customs Service attempted to verify the origin of the goods listed on the attached Certificate of Origin. You have either failed to provide the required information or the information you have provided is insufficient to substantiate the NAFTA claim. Therefore, the NAFTA claim for the goods, which were entered on entry number xxx-xxxxxxxx, is denied. Subsequent entries [ ]. . . .

On November 3, 2000, (except for the September 16, 1998 entry, which was liquidated on November 13, 2000) the goods covered by the entries at issue were liquidated with a rate advance. On January 25, 2001, the importer of record, through its counsel, filed a timely protest with the Customs port. On May 18, 2001, this office received the protest for further review. Counsel for the U.S. importer submitted additional information to this office on August 28, 2001.

The additional information submitted by the protestant includes what purports to be those lacking in submissions to the port by the Mexican exporter. For entry no. xxx-xxxxx70-1, dated June 30, 1998, counsel has submitted:

Affidavit by Timeless Fabrics Inc of 1724 Holbrook Street, Greensboro, NC 27403, the manufacturer of the fabric. The President of Timeless Fabric, Andre Robert, affirmed that the fabric was made in the U.S. wholly of yarn they purchased from Spectrum Dyed Yarns of Kings Mountain NC 28086. The affidavit includes the fabric style numbers and U.S. importer’s order number. Affidavit by Spectrum Dyed Yarns Inc. of 136 Patterson Road, Kings Mountain NC 28086, that the yarn sold to Timeless Fabrics was wholly made in the U.S. of U.S. materials. Processing Information: yarn was produced by Spectrum Dyed Yarns, Inc. by spinning and dyeing; fabric was produced by Timeless Fabrics, Inc. by knitting; finishing of the fabric was by E.J. Snyder & Co. Inc. of PO Box 670, Albemarle NC 28002; and garment produced by Confecciones y Disenos Textiles by cutting, sewing, pressing, packing and embroidery.

For entry no. xxx-xxxxx85-1, dated June 4, 1998, counsel has provided the following information for entries covered by invoice CD 0119:

Affidavit by Timeless Fabrics Inc of 1724 Holbrook Street, Greensboro, NC 27403, the manufacturer of the fabric. The President of Timeless Fabric, Andre Robert, affirmed that the fabric was made in the U.S. wholly of yarn they purchased from Spectrum Dyed Yarns of Kings Mountain NC 28086. The affidavit includes the fabric style numbers and U.S. importer’s order number. Affidavit by Spectrum Dyed Yarns Inc. of 136 Patterson Road, Kings Mountain NC 28086, that the yarn sold to Timeless Fabrics was wholly made in the U.S. of U.S. materials. Processing Information: yarn was produced by Spectrum Dyed Yarns, Inc. by spinning and dyeing; fabric was produced by Timeless Fabrics, Inc. by knitting; finishing of the fabric was by E.J. Snyder & Co. Inc. of PO Box 670, Albemarle NC 28002; and garment produced by Confecciones y Disenos Textiles by cutting, sewing, pressing, packing and embroidery.

Additionally, for goods covered by invoice CD 0121 for entry no. xxx-xxxxx85-1, dated June 4, 1998, counsel has submitted the following information:

Copy of Textile Export Visa/Invoice issued by the Mexican government for goods covered by invoice number CD 0121. Affidavit by the fabric supplier, Zhong Shan Huatai Textiles Co. Ltd., Chemical City, Heng Lan Zhen, Zhong Shan, Guangdong Province, P.R. of China, certifying that the 100% cotton shell and rib fabric was knitted by them using yarn originating in Korea.

For entry no. xxx-xxxxx33-4, dated December 29, 1998, counsel has provided the following information:

Affidavit by Timeless Fabrics Inc of 1724 Holbrook Street, Greensboro, NC 27403, the manufacturer of the fabric. The President of Timeless Fabric, Andre Robert, affirmed that the fabric was made in the U.S. wholly of yarn they purchased from Spectrum Dyed Yarns of Kings Mountain NC 28086. The affidavit includes the fabric style numbers and U.S. importer’s order number. Affidavit by the Vice President of R.L. Stowe Mills Inc. of Helms Plant, 101 Maple Street, Belmont NC 28012, certifying that the yarn was produced in the U.S. wholly of U.S. originating fibers and or other materials and sold to Valdese Manufacturing Co.. Processing information: the yarn was produced by R.L. Stowe Mills, Inc. by spinning; yarn was dyed by Valdese Manufacturing Co., PO Box 10, Valdese NC 28690; fabric was knitted by Timeless Fabrics, Inc.; fabric was finished by E.J. Snyder & Co., Inc. of PO Box 670, Albemarle NC 28002; that the garment was manufactured by Confecciones y Disenos Textiles by washing, cutting, sewing, pressing, packing and embroidery.

For entry no. xxx-xxxxx85-7, dated August 3, 1998, counsel submitted the following additional information:

Affidavit by Timeless Fabrics Inc of 1724 Holbrook Street, Greensboro, NC 27403, the manufacturer of the fabric. The President of Timeless Fabric, Andre Robert, affirmed that the fabric was made in the U.S. wholly of yarn they purchased from Spectrum Dyed Yarns of Kings Mountain NC 28086. The affidavit includes the fabric style numbers and U.S. importer’s order number. Two affidavits by the Vice President of R.L. Stowe Mills Inc. of Helms Plant, 101 Maple Street, Belmont NC 28012, certifying that the yarn was produced in the U.S. wholly of U.S. originating fibers and or other materials to be dyed by Valdese Manufacturing Co. Affidavit by the Corporate Purchasing Director of Spectrum Dyed Yarns, Inc., of 136 Patterson Rd, PO Box 609, Kings Mtn., NC 28086, certifying that the yarn sold to Timeless Fabrics, Inc. was produced by them. Processing information: yarn was spun by R. L. Stowe Mills, Inc.; yarn was dyed by Valdese Manufacturing or by Spectrum Dyed Yarns, Inc.; the fabric was knitted by Timeless Fabrics, Inc.; fabric was finished by E.J. Snyder & Co. of PO Box 670 Albemarle NC 28002; fabric was cut by Gallery Industries of 9265 NW 101 Street, Medley FL 33178; and garment was produced by Confecciones y Disenos Textiles by cutting, sewing, pressing and packing.

For entry no. xxx-xxxxx48-1, dated September 16, 1998, counsel has submitted the following information:

Affidavit by Timeless Fabrics Inc of 1724 Holbrook Street, Greensboro, NC 27403, the manufacturer of the fabric. The President of Timeless Fabric, Andre Robert, affirmed that the fabric was made in the U.S. wholly of yarn they purchased from Spectrum Dyed Yarns of Kings Mountain NC 28086 or from Valdese Manufacturing Co. of PO Box 10, Valdese NC 28690. The affidavit includes the fabric style numbers and U.S. importer’s order number. Processing information: fabric was made by Timeless Fabrics, Inc. by knitting; and garment was manufactured by Confecciones y Disenos Textiles by cutting, sewing, pressing, packing and embroidery.

Counsel states that the yarn used by Timeless Fabrics for garments in this entry was supplied either by Spectrum Dyed Yarns, Inc. or Valdese Manufacturing Co. Counsel notes that Timeless Fabrics used leftover or “seconds” fabric for this order. As a result, Timeless Fabrics is not able to ascertain which one of its two yarn suppliers supplied the yarn. Therefore, counsel states that it is unable to submit a yarn affidavit. Nevertheless, counsel asserts that based on the totality of the evidence and in consideration of the affidavits provided by Spectrum and Valdese for other entries, that Customs should find that the goods qualify for the NAFTA preference.

Additionally, for the entry dated October 16, 1998, counsel admits that due to the time lapse, it is unable to determine the yarn and fabric suppliers for this entry. Counsel stipulates that this will prevent these goods from qualifying for the NAFTA preference and that the protestant assumes responsibility for the duty and interest assessment.

Counsel asserts that the entries should be deemed liquidated duty free under the NAFTA preference, as claimed at the time of entry. In this regard, on November 19, 2001, the Duty and Refund Determination Branch of this office provided an internal opinion on the liquidation issue, which is incorporated here below.

ISSUE:

Whether the goods described above qualify for the NAFTA preferential duty rate.

LAW AND ANALYSIS:

I. Liquidation

Pursuant to 19 U.S.C. § 1504, “Unless an entry is extended . . ., an entry of merchandise not liquidated within one year from . . .the date of entry of such merchandise shall be deemed liquidated at the rate of duty, value, quantity, and amount of duties asserted at the time of entry by the importer of record. . . .” The foregoing period may be extended for an additional one-year period, if Customs requires additional information to appraise, classify, or “insure compliance with applicable law” or if the importer shows good cause therefore. See 19 U.S.C. § 1504(b); 19 C.F.R. § 159.12(a). Customs may request additional one-year extension periods, not to exceed three years’ total, if it determines it needs additional information. See 19 C.F.R. § 159.12(d)(1) &(e).

Entries xxx-xxxxx33-4, xxx-xxxxx70-1, xxx-xxxxx85-1, xxx-xxxxx85-7, xxx-xxxxx83-6

The protestant argues that since the subject merchandise was entered between June 4, 1998 and December 29, 1998, under § 1504, the one-year statutory period would have expired between June 4, 1999 and December 29, 1999. The protestant argues that according to the Automated Broker Interface (ABI), Customs did not extend the liquidation period until April 2, 2000 through September 3, 2000, which was after the one-year statutory period and, therefore, untimely. The protestant argues that the entries were deemed liquidated as entered since Customs did not extend the liquidation within the one-year statutory period, and therefore, Customs subsequent reliquidation of the entries in November 2000 was erroneous.

Based on our review of the ABI record provided by the protestant and the arguments presented in the protest, it appears that the protestant believed that Customs only extended the period of liquidation once. According to the Automated Commercial System (ACS), liquidation was extended twice.

We also note that in the ABI record provided by the protestant, the last column indicates the number of times the liquidations were extended for each entry. With the exception of entry 481, which was extended once, the column indicates that liquidation for the remaining entries was extended twice. The protestant asserts that the liquidation period was not extended until April 2, 2000 through September 3, 2000. The ACS records show the foregoing dates that the protestant relies upon were the dates of the second extension period. In fact, the ACS records show that the first notice of extension was issued to the importer and the surety between July 25, 1998 and January 30, 1999. As such, the first notice extended the one-year period to June 4, 2000 through October 16, 2000 for entries xxx-xxxxx70-1, xxx-xxxxx85-1, xxx-xxxxx85-7, xxx-xxxxx83-6, and December 29, 2000 for entry xxx-xxxxx33-4. The second extensions were issued between April 2, 2000 and September 3, 2000, respectively, which was before the first extension expired. The second notice, extended the liquidation period to June 4, 2001 through December 29, 2001 respectively, which is well after the November 3, and 13, 2000, dates Customs liquidated the entries. Therefore, since Customs timely extended these entries, and liquidation occurred before the expiration of the extensions, these entries were not deemed liquidated as entered.

B. Entry xxx-xxxxx48-1

With regard to entry xxx-xxxxx48-1, dated September 16, 1998, the protestant asserts that Customs extended the liquidation period on October 28, 1998, which was within the one-year statutory period. However, it was liquidated after the expiration of the extension period. Therefore, this entry is also deemed liquidated and Customs’ subsequent reliquidation of the entry in November 2000 was erroneous. The protestant is correct. According to the ACS, the liquidation period was extended once, and therefore, expired on September 16, 2000. Since Customs did not issue a second extension, the entry was deemed liquidated on September 16, 2000. Therefore, Customs’ subsequent liquidation of the entry on November 13, 2000, was in error.

II. NAFTA Eligibility

Section 181.21(a), Customs Regulations (19 CFR 181.21(a)) states, in pertinent part, that:

[I]n connection with a claim for preferential tariff treatment for a good under NAFTA, the U.S. importer shall make a written declaration that the good qualifies for such treatment. . . .[t]he declaration shall be based on a complete and properly executed original Certificate of Origin, or copy thereof, which is in the possession of the importer and which covers the good being imported. (Emphasis added)

To verify or substantiate the NAFTA claim, Customs has the right to seek further information by initiating a NAFTA verification. Under section 181.71, Customs Regulations (19 CFR § 181.71), except in such cases as when a Certificate of Origin is not provided, Customs can deny a NAFTA claim only upon a determination following an origin verification. In the instant case, the importer submitted various Certificates of Origin along with other entry documents. Therefore, in the instant case, a denial of the NAFTA claim must be a consequence of a verification.

A. NAFTA Verification with the Exporter

NAFTA verification procedures are set forth in section 181.72, Customs Regulations (19 CFR § 181.72). In particular, 19 CFR § 181.72(a), states:

Subject to paragraph (e) of this section, Customs may initiate a verification in order to determine whether a good imported into the United States qualifies as an originating good for purposes of preferential tariff treatment under the NAFTA as stated on the Certificate of Origin pertaining to the good.

Also, 19 C.F.R. § 181.72(a)(3) states, in pertinent part, that an origin verification shall be conducted only by certain means, including:

(3) A verification letter which requests information from a Canadian or Mexican exporter or producer, including a Canadian or Mexican producer of a material, and which identifies the good or material that is the subject of the verification. The verification letter may be on Customs Form 28 or other appropriate format and may be sent: (A) By certified or registered mail, or by any other method that produces a confirmation of receipt by the exporter or producer. . . .

The verification process under NAFTA is directed specifically at the exporter or producer in Canada or in Mexico. Inquiries may be made to the U.S. importer. However, the failure of the U.S. importer to respond to Customs requests does not prejudice the exporter or producer. In other words, the importer’s noncompliance with a Customs request is not imputed to the Mexican or Canadian producer or exporter. See 19 C.F.R. 181.72(c).

In the verification process, if the exporter or producer that receives a request for information from Customs does not respond within 30 days of the initial request for information, Customs shall send a follow-up verification letter. See 19 C.F.R. 181.72(d). The follow-up letter also should be sent by certified, registered, or other method of mail that can prove delivery. If the exporter or producer does not respond within 30 days of receiving the follow-up request, Customs may then consider the goods to not originate in a NAFTA country and may then deny preferential tariff treatment on the goods. See 19 C.F.R. § 181.72(d)(2)(ii). See also, Customs Directive 3810-011A.

Customs Directive 3810-010A outlines procedures on NAFTA origin determinations. It states, in pertinent part, that:

The written determination is to be provided to the exporter. 2.5 Where an increase in duties requires notification to the importer of record, the notification will be given on a separate CF 29. . . . If additional information is supplied before the effective date of a proposed determination, it must be taken into consideration. . . . 6.8 . . . .Negative determinations must be sent to Mexico by a method that produces a receipt. . . .

In the instant case, Customs port followed the procedures prescribed by Customs Regulations and by the above Directives. The initial Request for Information was on May 17, 2000. More than 30 days were provided for a response. The exporter responded on July 6, 2000, although the information provided was incomplete. The exporter was afforded an opportunity to provide the missing information. The exporter responded with additional information, although again it was incomplete. Customs port issued the final proposed rate advance on August 30, 2000, and denied the NAFTA claim on September 20, 2000. The timing of these Customs notices was in compliance with NAFTA verification procedures.

Additionally, the issue of whether the exporter received the U.S. Customs notices is moot because the exporter responded to each request, although with insufficient information. Therefore, the responses themselves are prima facie evidence that the notices were received by the Mexican exporter/producer. In conclusion, the port’s negative NAFTA determination was consistent with Customs regulations and procedures.

B. Importer’s Rights under the NAFTA Verification Process

The protestant is the importer of record. As noted above, pursuant to the NAFTA and the Customs Regulations, the origin verification is directed at the party that executed the Certificate of Origin, which is the exporter or the producer in the exporting NAFTA country. See 19 C.F.R. 181.72(a)(3). See also NAFTA Article 506(1)(a).

Despite the emphasis in NAFTA origin verification on the exporter or producer, an importer’s interest (the protestant in this case) is preserved by its right to protest the chargeable rate of duty. See 19 C.F.R. § 174.11(b). Customs port followed the procedures by providing the importer a copy of the September 20, 2000, Notice of Action for a rate advance and a negative NAFTA determination.

The importer’s counsel stated in its Memorandum in Support of Protest filed with the protest, that if necessary, they are able to obtain the necessary information that was lacking in the exporter’s submissions to the port. Upon further review in a protest, 19 C.F.R. § 174.28 allows the submission of additional arguments/grounds and alternative claims until the final disposition of the protest. It has been the practice of this office to allow protestants to submit additional evidence as well. See for example, HRL 112667, dated May 25, 1993; HRL 224397, dated March 8, 1994; and HRL 224118, dated July 26, 1993. Therefore, this office, upon request by the counsel, provided an opportunity for the counsel to submit additional evidence. On August 28, 2001, counsel submitted additional evidence as described in the facts section above.

For entry no. xxx-xxxxx70-1, dated June 30, 1998; entry no. xxx-xxxxx85-1, dated June 4, 1998; entry no. xxx-xxxxx33-4, dated December 29, 1998; and entry no. xxx-xxxxx85-7, dated August 3, 1998, we find that the counsel has provided all the information that was lacking in the exporter’s submissions to the port. As we have no reason to doubt the veracity of the information, it is our opinion that the goods for those entries qualify for the NAFTA preference.

For entry no. xxx-xxxxx48-1, dated September 16, 1998, counsel states that the fabric producer is unable to determine which of the two yarn suppliers it used and therefore the protestant is unable to submit an affidavit from a yarn supplier. However, the protestant contends that the yarn is from one of the two yarn suppliers used in other entries - Spectrum Dyed Yarns or Valdese Manufacturing. The fabric producer in this instance (Timeless Fabrics) also affirms in his affidavit that the fabric was made using yarn from either of the two U.S. yarn producers (Spectrum Dyed Yarns or Valdese Manufacturing) but that because they used leftover or “seconds” fabric, they are unable to determine the exact yarn supplier. Based on the totality of the evidence presented, we are satisfied that the yarn used in the production of these goods was produced in the U.S. by either Spectrum or Valdese. Additionally, as noted above, because Customs did not extend the liquidation of the entry at the expiration of the first extension, the entry was liquidated by operation of law on September 16, 2000. Therefore, the rate of duty as liquidated on September 16, 2000, should stand. As a result, the NAFTA claim should be granted with respect to the September 11, 1998 entry.

Lastly, the lack of information for the entry on October 16, 1998, precludes the NAFTA preference claim, which the protestant does not contest.

HOLDING:

Liquidation of entries dated June 4, 1998, June 30, 1998, August 3, 1998, October 16, 1998, and December 29, 1998 were properly extended. Therefore, these entries are not deemed liquidated as entered. The liquidation of entry on September 16, 1998, is deemed to have occurred on September 16, 2000. Therefore, by operation of law, this entry is deemed liquidated as entered with a claim for the NAFTA duty-free preferential treatment.

For the foregoing reasons, the portion of the protest regarding the issue of NAFTA eligibility for entries dated June 4, 1998, June 30, 1998, August 3, 1998, September 16, 1998, and December 29, 1998, should be granted. The portion of the protest relating to the issue of NAFTA eligibility for the entry dated October 16, 1998, should be denied.

This decision should be mailed by your office to the protestant no later than sixty days from the date of this letter. On that date, the Office of Regulations & Rulings will take steps to make the decision available to Customs personnel and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other means of public distribution.

Sincerely,

John Durant
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