Textile & Apparel Rules Under Free Trade Agreements

Textile & Apparel Rules Under Free Trade Agreements & Preference

Programs

July 2012

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U.S. Customs and Border ProtectionPriority Trade Issues (PTIs) Agriculture Programs

Antidumping and Countervailing Duties (ADCVD)

Intellectual Property Rights

Import Safety

Penalties

Revenue

Textiles

Trade Agreements

Textiles The goal of the Textiles PTI is to ensure that textile imports, which generate more than 40% of the duties collected byCBP, fully comply with applicable laws, regulations, quotas, Free Trade Agreement requirements, and Intellectual Property provisions.

Trade Agreements The objective of the Trade Agreements PTIis to advance CBP’s mission by working with internal and external stakeholders to facilitate legitimate trade and address areas ofnon-compliance while effectively communicating the terms of our free trade agreements and preferential trade legislation. The TAPTI is limited to goods other than textiles and apparel, as textiles and apparel products are handled under a separate Textiles PTI.

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CBP Textiles Priority Trade Issue U.S. Imports of Textile and Apparel Goods Total $115 Billion

Account for Approximately 43% of All Duties Collected

Key Industry for the U.S. Economy

Highly Regulated and Legislated FTAs (17% of Textile and Apparel Imports Claim a Preference)

Key Industry for Free Trade Agreements

Key Industry for Administration’s Trade Policy

Key Industry for Congressional Legislation

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Textile/Apparel Supplier Countries by Value

1 China 42%2 Vietnam 6%3 Mexico 6%4 India 5%5 Indonesia 4%6 Bangladesh 4%7 Pakistan 3%8 Honduras 2%9 Canada 2%

10 Cambodia 2%11 Italy 2%12 Thailand 2%13 El Salvador 2%14 Sri Lanka 1%15 Guatemala 1%

1 China 41%2 Vietnam 6%3 India 6%4 Mexico 5%5 Indonesia 5%6 Bangladesh 4%7 Pakistan 3%8 Honduras 2%9 Cambodia 2%

10 Canada 2%11 Italy 2%12 El Salvador 2%13 Thailand 1%14 Sri Lanka 1%15 Guatemala 1%

FY10 FY11

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Unilateral/Bilateral/Multilateral Preference Programs African Growth and Opportunity Act (AGOA) Qualifying Industrial Zones; Jordan/Israel/Egypt Caribbean Basin Trade Partnership Act, Haiti HOPE and HELP Andean Trade Promotion and Drug Eradication Act Free Trade Agreements (Australia, Bahrain, CAFTA, Colombia, Chile, Israel, Jordan,

Korea, Morocco, NAFTA, Oman, Peru, Singapore)

Trade Agreements Have Become a Critical Element in the Overall Foreign Policy of the United States

Unique Qualifying Rules for Each for Textile and Apparel Goods

CBP Textiles Priority Trade IssueEnforcement Efforts

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U.S. Legal Concepts of “Shared Responsibility,” “Informed Compliance,” and “Reasonable Care” Apply to Importers

By Making a Claim for Preferential Treatment Under a FTA or Preference Program, the Importer of Record is Declaring to CBP They KNOW, UNDERSTAND and MEET the Preference Rule

No Special Documents are Needed for Entry Purposes

If Asked, the Importer of Record Must Substantiate the Claim is Valid

Textile & Apparel Rules Under Free Trade Agreements & Preference Programs

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CBP and Other U.S. Government Public Resources:Where to find information, instructions and guidance about Free Trade Agreements and preference programs.

FTA & Preference Rules: Basic summary of the types preference rules for preferential treatment, how to file a claim for preferential treatment.

CBP Verification Procedures: Review of U.S. Customs and Border Protection procedures for implementing and enforcing the terms of the agreement or program.


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CBP and Other U.S. Government Public Resources

Where to find information, instructions and guidance about Free Trade Agreements and preference

programs.

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Official Resources (U.S. Government) Harmonized Tariff Schedule of the United States (HTS) U.S. Code of Federal Regulations (CFR) U.S. Customs and Border Protection Resources:

www.cbp.gov Customs Rulings Online Search System (CROSS) Informed Compliance Publications TBTs and QBTs

U.S. Trade Data: U.S. International Trade Commission (USITC) DataWeb Office of Textiles and Apparel (OTEXA), U.S. Department of Commerce


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Official Resources (U.S. Government)

FTA & Preference Rules

General Notes (GN “_”) (one per agreement or program)

Duty Rates indicated by Special Program Indicators (SPI) in “Special” column in Chapters 1-97

http://www.usitc.gov

Harmonized Tariff Schedule of the United States (HTS)

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Official Resources (U.S. Government)Harmonized Tariff Schedule of the United States (HTS) – GN 33

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Official Resources (U.S. Government)U.S. Customs and Border Protection Website

www.cbp.gov

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FTA Regulations

19 CFR 10 Subpart “_”

U.S. Code of Federal Regulations (CFR)

www.gpo.gov/fdsys/browse/collectionCfr.action?collectionCode=CFR

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Documentation Required for Entry19 CFR 142.3 (Entry Documentation) and 19 CFR 141.11 (Right to Make Entry)

Documentation Required for Entry(19 CFR 142.3):

CBP Form 7501 Entry Summary

Right to Make Entry – Negotiable Bill of Lading (19 CFR 141.11)

Commercial Invoice

Packing List

Other Documentation As Required by Other U.S. Agencies

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CBP Form 7501, Entry Summary

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Invoice Requirements19 CFR 141.86

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Invoice Requirements

Port of Entry

Name of Importer

Detailed Description of the Merchandise

Quantities

Purchase Price in U.S. Dollars

Country of Origin

19 CFR 141.86

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Advance Rulings

What are Ruling Letters? It is in the interest of the sound

administration of CBP and related laws that persons engaging in any transaction affected by those laws fully understand the consequences of that transaction prior to its consummation. For this reason, Customs and Border Protection will give full and careful consideration to written requests from importers and other interested parties for rulings or information setting forth, with respect to a specifically described transaction, a definitive interpretation of applicable law, or other appropriate information.

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Advance Rulings

• Tariff Classification

• Application of Customs Value Criteria

• Application of Duty Drawback, Deferral, or Relief from Other Customs Duties

• Trade Agreement or Program “Originating” Status

• Eligibility for Duty-Free Repairs or Alterations Under FTA

• Country of Origin Marking

• Whether a Good is Subject to Quota or Tariff Rate Quota

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Advance RulingsInformation Required in Ruling Requests

Ruling requests must contain a complete statement of all relevant facts relating to the transaction including:

• The name, address, email address and phone number of the requesting party.

• The names, addresses, email addresses and other identifying information of all interested parties (if known) and the manufacturer ID code (if known).

• The name(s) of the port(s) in which the merchandise will be entered (if known).

• A description of the transaction; for example, a prospective importation (merchandise) from (country).

• A statement that there are, to the importer's knowledge, no issues on the commodity pending before CBP or any court.

• A statement as to whether advice has been sought from a CBP office; and if so, from whom, and what advice was rendered, if any.

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Customs Rulings Online Search System (CROSS)

Classification Guidance

Eligibility for Preferential Treatment U.S.-Korea FTA Other Free Trade Agreements Preference Programs (AGOA,

ATPDEA or CBTPA)

http://rulings.cbp.gov

U.S. Customs and Border Protection Resources

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Official Resources (U.S. Government)CBP Resources - CROSS

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Official Resources (U.S. Government)CBP Resources – CROSS - ExampleN205394March 22, 2012CLA-2-38:OT:RR:NC:2:239 CATEGORY: ClassificationTARIFF NO.: 3824.90.9290Mr. Glenn M. Carberry Praxair, Inc.

175 East Park Drive Tonawanda, NY 14150RE: The tariff classification of a compressed gas mixture from South Korea

Dear Mr. Carberry:

In your letter dated February 21, 2012, you requested a tariff classification ruling.

The subject product is a compressed gas mixture of fluorine and nitrogen. You state that the product will be imported in a cylinder and will be used to passivatesteel and stainless steel piping in the electronics industry.

The applicable subheading will be 3824.90.9290, Harmonized Tariff Schedule of the United States (HTSUS), which provides for Chemical products and preparations of the chemical or allied industries (including those consisting of mixtures of natural products), not elsewhere specified or included: Other: Other: Other: Other: Other: Other. The rate of duty will be 5 percent ad valorem.

Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on World Wide Web at http://www.usitc.gov/tata/hts/.

This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177).

A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, contact National Import Specialist Richard Dunkel at (646) 733-3032.

Sincerely,Thomas J. Russo Director National Commodity Specialist Division

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Official Resources (U.S. Government)U.S. Customs and Border Protection Resources

Informed Compliance Publications (ICP)

http://www.cbp.gov/xp/cgov/trade/legal/informed_compliance_pubs/

Examples: Classification: Apparel Terminology Under the HTSUS Classification of Coated and Water Resistant Apparel Classification of Knit to Shape Apparel Garments Under HTSUS Heading 6110 Classification of Sets Entry Marking Requirements for Wearing Apparel NAFTA for Textiles & Textile Articles Textile & Apparel Rules of Origin

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Official Resources (U.S. Government)CBP Resources – Informed Compliance Publications

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Textile Bulletin Transmittals (TBTs) (Example) TBT-07-019 Documents Used to

Verify Free Trade Agreements and Legislated Trade Program Claims for Textiles and Wearing Apparel

http://www.cbp.gov/xp/cgov/trade/priority_trade/textiles/tbts/

Quota Bulletin Transmittals (QBTs) (Example) QBT-09-102 CAFTA-DR MX

Cumulation (Announcement of Quota Limit for 2010)

http://www.cbp.gov/xp/cgov/trade/trade_programs/textiles_and_quotas/qbts/

U.S. Customs and Border Protection Resources – TBTs, QBTs

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U.S. International Trade Commission (ITC) DataWeb: http://dataweb.usitc.gov/ Login and Password Required (Free) Data for All U.S. Imports and Exports

U.S. Trade Data Office of Textiles and Apparel (OTEXA)

U.S. Department of Commerce: http://otexa.ita.doc.gov

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FTA & Preference RulesBasic summary of the types preference rules for

preferential treatment, how to file a claim for preferential treatment.

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What is a Rule of Origin?

Product Specific or Tariff Shift Rules of Origin

Short Supply Rules

Tariff Preference Levels (TPLs)

Value-Based Rules (for Israel, Jordan, QIZs)

Process-Based Rule (Preference Programs)

FTA & Preference RulesTextile and Apparel Goods

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A good must be more than a product of a FTA partner or beneficiary country, it must meet a preference rule of origin

The FTA & preference rules of origin lay out the various methods that a good can qualify for preference, or “originate”

An imported good must “be originating” to receive preferential tariff treatment

Preferential tariff treatment is not necessarily “duty-free,” might be a reduced rate of duty while tariffs are being phased out

Applicable duty rates are found in the “Special” Column of the HTS, listed by agreement or program using the Special Program Indicator (SPI)

Rules of Origin

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U.S.-Korea FTA Duty Rates (U.S.)

Column One Rate is 18.8%

Rate for originating socks from Korea is 15%

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International Nomenclature

Transparent

Not Subjective

Product Specific Rules - Tariff Shift

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Usually cover HTS Chapters 50 through 63

Tariff shift rules for most fabrics and wearing apparel are based on “yarn-forward” concept Chapter Rules Apply in conjunction with tariff shift rules, depending

on agreement: Component that determines classification Visible lining fabrics formed and finished Sewing thread formed and finished Narrow elastic fabrics formed and finished Pocket bag fabric formed and finished

Sets: Total value of the non-originating goods in the set may not exceed 10% of the customs value of the set


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U.S.-Korea FTA “Originating” GoodsTariff Shift Rules – Example – Girls’ Man-made Fiber SweaterClassification – HTS Chapter 61

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Tariff Shift Rules – Example – Girls’ Man-made Fiber SweaterHTS GN 33 (o)

Girls’ Man-made Fiber Sweater HTS 6110.30.3025

U.S.-Korea FTA Tariff Shift Rule from GN 33 (o) Chapter 61 No. 33

U.S.-Korea FTA “Originating” Goods

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FTA “Originating” GoodsTariff Shift Rules – HTS Headings for Fibers, Yarns and Fabrics

6001-6006: Knit Fabrics

5901-5911: Coated

5801-5804: Specialty(Rubber, Coated, Metal, etc)

5602-5603: Felt & Non-Woven5604-5606: Specialty

5512-5516: Man-made Staple (Woven)5508-5511: Man-made Staple

5407-5408: Man-made Filament (Woven)

5401-5406: Man-made Filament

5501-5507: Man-made Staple

5309-5311: Vegetable Fibers (Woven)5306-5308: Vegetable Fibers5301-5305: Vegetable

5208-5212: Cotton (Woven)5204-5207: Cotton5201-5203: Cotton

5111-5113: Wool (Woven)5106-5110: Wool5101-5105: Wool

5007: Silk5004-5006: Silk5001-5003: Silk

FabricsFabricsYarnsYarnsFibersFibers

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Tariff Shift Rules – Example – Girls’ Man-made Fiber SweaterHTS GN 33 (o)

A change to headings 6109 through 6111 [6110.30.3025] from any other chapter, except fromexcept from

headings 5106 through 5113 [Wool Yarn and Woven Fabric], 5204 through 5212 [Cotton Yarn or Woven Fabric], 5307 through 5308, 5310 through 5311 [Certain Woven Vegetable Fiber Fabric], 5401 through 5402, subheadings 5403.20, 5403.33 through 5403.39 or 5403.42 through heading 5408 [Certain Man-made Filament Yarn or Woven Fabric], or headings 5508 through 5516 [Man-made Staple Yarn or Woven Fabric] or 6001 through 6006 [Knit Fabric],

provided that the good is cut or knit to shape, or both, and sewn or otherwise assembled in the territory of one or more of the parties to the Agreement.

U.S.-Korea FTA “Originating” Goods

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Tariff Shift Rules

““Except fromExcept from”” is the phrase that tells us which materials used in the production of the finished good must also be of U.S. or Korean origin

Materials classified in excluded tariff provisions – by chapter (2 digits), by heading (4 digits) or by subheading (6 digits) of the tariff schedule – are required to be produced in the U.S. or Korea in order for the good produced from those materials to be eligible for preferential treatment under the U.S.-Korea FTA


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All tariff shift model agreements include a De Minimis provision which permits the limited use of non-U.S., non-Partner fibers or yarns in the yarns or fabrics used in the production of the component of the goods which determines the tariff classification.

Example (from U.S.-Korea FTA):


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For many agreements, elastomeric yarn MUST always be formed and finished in one of the Parties to the Agreement, regardless of the percentage by weight.

Example (from U.S.-Korea FTA):


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Tariff Shift Rules

Filing a FTA Claim Based on Tariff Shift Rules: Use 10-Digit HTS Number from Chapter 1-97 in First Tariff Field of the

U.S. Entry Summary (CF 7501) Affix Special Program Indicator of “_” (depends on agreement) in Front

of First Tariff Field


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FTA Rules – Example of “Short Supply”or Commercial AvailabilityHTS GN 29 (m)(viii), Chapter 98 Subchapter XXII, Note 20

CAFTA-DR Preference Rule for Short Supply Defined GN 29 (m)(viii): Textile Goods of Chapters 50 through 60Textile Goods of Chapters 50 through 60 Must Be Wholly Formed in a

CAFTA-DR Country From…: Apparel Goods of Chapters 61 or 62Apparel Goods of Chapters 61 or 62 Must Be Cut or Knit to Shape, or Both,

and Sewn or Otherwise Assembled in a CAFTA-DR Country, and the Fabric of the Outer Shell, Exclusive of Collars and Cuffs Where Applicable Must BeFrom…: Textile Goods of Chapter 63 or Subheading 9404.90Textile Goods of Chapter 63 or Subheading 9404.90 Must Be Cut or Knit to

Shape, or Both, and Sewn or Otherwise Assembled in a CAFTA-DR Country, and the Component That Determines the Tariff Classification of the Good Must Be From…:

One or More of the Fibers, Yarns or Fabrics on the CAFTAOne or More of the Fibers, Yarns or Fabrics on the CAFTA--DR Commercial DR Commercial Availability (Short Supply) List, or Originating Fibers, Yarns oAvailability (Short Supply) List, or Originating Fibers, Yarns or Fabrics, or r Fabrics, or a Combination of Botha Combination of Both

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Commercial Availability or “Short Supply” Fibers, Yarns and Fabrics Listed in HTS Chapter 98 Subchapter XXII

Additions to Short Supply Lists Only on OTEXA Website: http://otexa.ita.doc.gov:

Example: CAFTA-DR Short Supply List Shown

+140 Items on List

FTA Rules – Example of “Short Supply”or Commercial Availability

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CAFTA-DR “Originating” GoodsCommercial Availability or “Short Supply”HTS GN 29 (m)(viii), Chapter 98 Subchapter XXII, Note 20

Be Careful:Be Careful: CAFTA-DR Short Supply Materials Must Meet All Specifications Such as Fiber Content, Width, Thread Count, Finishing Operations, Etc… Classification Alone Not Enough

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Some Short Supply Rules are part of the tariff shift rules, so aclaim is filed simply with the SPI on the CF 7501

Some Short Supply Rules rely on a list and make reference to a HTS Chapter 98 provision (such as CAFTA-DR below):

Filing a CAFTA-DR Short Supply Claim Use HTS 9822.05.01 in First Tariff Field of the U.S. Entry Summary

(CF7501) Use 10-Digit HTS Number from Chapter 50 through 63 or Subheading

9404.90 in Second Tariff Field Affix Special Program Indicator of “P” in Front of Second Tariff Field Report Value and Quantity of the Goods with Second Tariff Field

FTA Rules – Example of “Short Supply”or Commercial Availability

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Not Included with Every Tariff Shift Agreement

Product Coverage Explicitly Defined in HTS Chapter 98 or 99

Are NOT “Originating” Goods

Rules for Apparel Generally “Cut and Sew”

Do Not Use Special Program Indicator (SPI)

Some TPLs Require Special Certificate for Entry/Filing a Claim

Subject to Merchandise Processing Fee (MPF) Only “Originating” Goods are Exempt from MPF

FTA Rules – Tariff Preference Levels

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Generally, Filing a TPL Claim: Use Chapter 99 HTS Number for TPL (Above) in First Tariff Field Use 10-Digit Chapter 61-62 (product scope varies) HTS Number in Second

Tariff Field NO Special Program Indicator (SPI) Report Value and Quantity of Goods with Second Tariff Field

Some TPLs, (for example, NAFTA or Nicaragua CAFTA-DR) Require Special Certificate at Entry in Addition to the Above

FTA Rules – Tariff Preference Levels

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Certain Agreements (U.S.-Israel FTA, U.S.-Jordan FTA and Qualifying Industrial Zones (QIZs) for Egypt and Jordan) Rely on a 35% Value Requirement to be Considered Originating

Claims for Preferential Treatment Filed Same as Tariff Shift –Insert the Special Program Indicator (SPI) on the Entry Summary document in front of the HTS Number.


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The Legislated Preference Programs: Africa Growth and Opportunity Act (AGOA) Caribbean Basin Trade Partnership Act (CBPTA) and Haiti HOPE/HELP Andean Trade Promotion and Drug Eradication Act (ATPDEA)

Follow “Process-based” Rules with Certain Origin-Restricted Inputs.

AGOA, CBTPA, ATPDEA Use Certificates of Origin to Assist in the Recordkeeping and Reporting of Information (Forms Can Be Found in the 19 CFR 10 Regulations)

AGOA and Haiti HOPE/HELP Also Require a Visa Issued by the Exporting Government

Filing a Claim Utilizes the 2 HTS Fields on the CF7501


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To Be Considered an Originating Good, a Good Must Not:

Undergo Subsequent Production or Any Other Operation Outside the Territories of the Parties, Other Than: Unloading Reloading Any Other Operation Necessary to Preserve the Good in

Good Condition or to Transport the Good to the Territory of a Party

Be Outside Customs Control in the Territory of a Non-Party

Transit and Transshipment

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CBP Verification ProceduresReview of U.S. Customs and Border Protection

procedures for implementing and enforcing the terms of the agreement.

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U.S. Law Requires Importers to Maintain all Entry Documents for a Period of 5 Years;

Recordkeeping Requirements Apply to Any Supporting Documentation Needed to Substantiate a Preference Claim Under a Legislated Program or Free Trade Agreement

If an Importer Fails to Substantiate a Claim for Preferential Treatment Based on the QIZ Rules, then CBP Will Assess Duty on the Goods Subject to the Verification

The Burden of Proof to Support the Duty-free Claim is on the Importer

Supporting Documents for Claims

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CBP Port Verifications Generally Conducted Post Entry Summary

Do Not Require the Detention of Merchandise

Exam and Acquisition of Sample May be Required

CBP Will Request Proof of Origin for Origin-Restricted Inputs, such as: Affidavit from Actual Producers of Yarn and Fabric Commercial Invoice Clearly Stating Goods Were Produced by Factory Other Documents as Required

CBP May Verify Accuracy of Affidavits

CBP May Request Documents in Support of Transit and Transshipment Requirements

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Claim May Be based on Importer Knowledge

CBP Retains Authority to Request Documentation and Make a Determination

Importer is Required to Support a “Knowledge” Claim with Documentation

Importer Knowledge

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Certification

Documents Supporting Production Process, Cost Data, Materials Used in Production

Information Concerning the Growth, Production or Manufacture

Responding to a CBP Form 28, Request for Information

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CBP Form 28, Request for Information

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Can Be In Any Format

Must Contain Certain Data Elements

Must Be Submitted Upon Request

May Be Submitted Electronically

CertificationImporter Requirement

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Certifying Person

Importer

Exporter

Producer

Description of Good

Tariff Classification

Data Elements

Information Demonstrating that a Good is Originating

Period Certification Covers (if a blanket certification)

Certifying Statement

Authorized Signature & Date

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Textile Affidavits Affidavits Must Contain Contact Information

Yarn and Fabric Producer Must Each Prepare an Affidavit

Affidavit Must Contain Specific Information Type of Yarn/Fabric Link to Supporting Documents; Contracts, Invoices, Purchase

Orders See CBP Textile Bulletin Transmittals:

TBT-12-003 Supplemental Instructions for Document Review When Verifying Trade Preference Program Claims for Textiles and Wearing Apparel

TBT-11-004 Additional Documents Used to Verify Free Trade Agreement and Legislated Trade Program Claims for Textiles and Wearing Apparel

TBT-07-019 Documents Used to Verify Free Trade Agreement and Legislated Trade Program Claims for Textiles and Wearing Apparel

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Issued through a CBP Form 29

Positive or Negative

List factual findings

Identify appropriate statutes/regulations

DeterminationsWritten Notification Required

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CBP Form 29, Notice of Action

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Production Verification -Textile Production Verification Team (TPVT) Visits Several FTAs Provide for Textile and Apparel Factory Visits to

Verify Production and Recordkeeping

Example: Article 4.3 of U.S.-Korea FTA States the “Importing Party” (U.S.) may conduct a verification by

visits to an “exporter, producer, or any other person that may have evidence that is relevant to the verification.” Visits are to be unannounced

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Textile Production Verification Teams Team Members Include: Import Specialists, Immigration and

Customs Enforcement Investigators, CBP Auditors or International Trade Specialists

Teams Visit Foreign Manufacturing Operations to: Determine if factory made the goods that were entered into the

U.S., i.e validate origin Determine production capacity of the factory/type of goods and

amount of goods capable of being produced Determine if the apparel or textile goods produced meet the

requirements for trade preference treatment

Textile & Apparel Rules Under Free Trade Agreements

Documents

Transcript of Textile & Apparel Rules Under Free Trade Agreements