HQ 562547 - Protest No. 240202100052; NAFTA Preferential Tariff Treatment; Verification; Failure to Co-Operate; Inability to provide information for reasons beyond the control of the exporter or producer - United States International Trade Commision Rulings

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HQ 562547

December 30, 2002

MAR-05 RR:CR:SM 562547 NL

CATEGORY: CLASSIFICATION

Service Port Director
U.S. Customs Service
797 S. Zaragosa RD
EL PASO, TX 79907

RE: Protest No. 240202100052; NAFTA Preferential Tariff Treatment; Verification; Failure to Co-Operate; Inability to provide information for reasons beyond the control of the exporter or producer

Dear Port Director:

This office has considered the application of Denimtex, S.A. de C.V. (Denimtex) for further review of the above-referenced protest. The decision of this office follows.

FACTS:

Denimtex, a Mexican entity, produced denim fabric and imported it into the United States from 1999 through 2001. These importations were made with claims for NAFTA preferential tariff treatment. The NAFTA Certificates of Origin associated with these shipments listed preference criterion A as the basis for preferential treatment, indicating that the denim fabric was wholly obtained or produced entirely in the territory of one or more of the NAFTA countries as referenced in Art. 415 of the NAFTA.

In July, 2001, a Joint Verification team submitted a Report of its attempt to conduct a NAFTA Verification of the Denimtex shipments of denim fabric for calendar year 1999 to the Service Port Director, El Paso.

The Report stated that although the company responded to questionnaires and provided certificates of origin for certain chemicals used in production of the fabric, information provided by the company was otherwise not sufficient to verify the claim for preferential tariff treatment. The Report further stated that the production facility in Chihuahua, Chihuahua State was not in operation during a visit by the Joint Verification Team. From the records in the file it appears that this was due to a strike and lockout by employees, and that the plant did not subsequently reopen. Records in the file further indicate that the company either went into bankruptcy or that the ownership intended to declare bankruptcy.

The company did not provide the Joint Verification team with any mill certificates or other proof of origin for the cotton or for the yarn used in production of the denim. No factory production records were supplied. Also, the team found that one of the dyes used originated in China.

On the basis of these results, the El Paso Service Port Director, having advised Denimtex of his intentions, issued a determination pursuant to 19 CFR 181.74 that, for failure to maintain records and to cooperate with the NAFTA verification, preferential tariff treatment was to be denied.

By a CF 29 Notice of Action dated January 28, 2002, the El Paso Service Port Director advised Denimtex that preferential tariff treatment for entries of denim fabric from 1999 through 2001 was being denied. The instant protest followed, filed on behalf of Denimtex by its broker. The broker protested the liquidation of these entries as dutiable. In its accompanying memorandum, the broker stated that since September, 2001, it had been unable to contact anyone at the Denimtex plant. The memorandum further advised that if additional information became available it would provide it to Customs. No such information has since been provided.

The El Paso Service Port advised that in issuing its determination of a failed verification it took account of Section 15 of the Uniform Regulations (19 CFR 181 App., Section 15). Section 15 sets forth a series of factors that Customs shall consider before making a post-verification determination when a person fails to make information available for reasons beyond his control.

With regard Section 15, the El Paso Service Port advised that the circumstances contributing to the Denimtex failure to make information available were that, according to its representative the exporter did not have access to the facility and/or their records shortly after the Joint Verification team’s on-site visit. The facility was said to have been taken over by the employees who had not been paid. The Denimtex representative, Roberto Rubio informed Customs on 3/21/02, that he no longer worked for Denimtex, but would be able to relay messages to Mr. Atri, President of Denimtex in Mexico City. Customs requested a valid address in Mexico, but the representative failed to provide any additional information. The customs broker for Denimtex, Brown, Alcantar & Brown also failed to provide any additional information when requested.

With respect to the factors to be considered by Customs under Section 15 of the Uniform Regulations if the failure to supply information is beyond the control of the producer or exporter, the El Paso Service Port advised that:
a) No advance ruling was issued that concluded that the good is an originating good;
b) Customs had no knowledge that an independent auditor confirmed the accuracy of an origin statement with respect to the good;
c) Customs did has not previously conduct a verification of origin of identical goods or similar goods produced by the producer of the good;
d) The exporter did not exercise due diligence to ensure that the information provided was sufficient. Records requested by Customs were not available during the on-site visit; Customs provided the exporter reasonable time to provide backup documents; the exporter failed to maintain, store and retrieve records that were required to substantiate the claim for preferential tariff treatment.
e) The partial records did not provide sufficient evidence to substantiate that the good was originating;
f) Customs was unable to obtain relevant information from the cotton producers; they were not willing to supply additional information due to the exporter's outstanding debts; and
g) The exporter did not indicate that it would agree to bear any expenses incurred in providing assistance in order to determine the origin of the good.

ISSUE:

Whether the protest should be allowed.

LAW & ANALYSIS:

Apart from the act of filing of the instant Protest, neither Denimtex nor its customs broker has offered any argument or fact in challenge to the Service Port Director’s decision. Nothing in the record suggests otherwise than that the information necessary to determine the originating status of the merchandise was not made available by the exporter to Customs.

In conformity with section 181.74(b), Customs Regulations, the Service Port Director denied preferential tariff treatment on the basis that Denimtex had failed to cooperate or maintain records.

Assuming by way of mitigation that some of the non-cooperation or failure to maintain records was beyond the control of Denimtex, the Service Port Director considered the factors set out in Section 15 of the Uniform Regulations (Section 181 App., Section 15) before issuing his decision. In this instance, none of the factors applied to the facts at hand point to a finding that the goods were originating. Most relevantly, it appears that the pertinent records were already in disarray or unavailable even before the strike and lockout events that were followed by the apparent termination of production activities at the Chihuahua plant. It may therefore be concluded that even having considered the various Section 15 factors that apply when a failure to provide records was beyond the control of the exporter, the Service Port Director appropriately found that preferential tariff treatment under NAFTA should be denied under Section 181.74(c), Customs Regulations.

HOLDING:

Protest No. 240202100052 should be denied in full.

In accordance with Section 3A(11)(b) of Customs Directive 099 3550065, dated August 4, 1993, this decision and the Customs Form 19 are to be mailed to the protestant no later than sixty days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision must be accomplished prior to mailing the decision. Sixty days from the date of the decision, the Office of Regulations and Rulings will 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 methods of public distribution.

Sincerely,

Myles B. Harmon
Acting Director

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