H312424

HQ H312424 August 18, 2020 OT:RR:CTF:VS H312424 AP CATEGORY: Classification Center Director Apparel, Footwear and Textiles CEE 200 East Bay Street Charleston, South Carolina 29401 Attn.: Jose Ramos, Supervisory CBP Import Specialist RE: Application for Further Review of Protest Number 4601-20-112855; African Growth and Opportunity Act; Ethiopia; footwear; double substantial transformation; value-content; General Note 16, HTSUS Dear Center Director: The following is our decision regarding the Application for Further Review (“AFR”) of Protest Number 4601-20-112855, timely filed on April 21, 2020, on behalf of VCS Group LLC (“protestant”). Protestant contests U.S. Customs and Border Protection’s (“CBP”) denial of preferential tariff treatment under the African Growth and Opportunity Act (“AGOA”) for its footwear imported from Ethiopia. FACTS: The subject footwear was manufactured at Huajian International Shoes City (Ethiopian) P.L.C. (“factory”) in Ethiopia from raw materials supplied from China. Protestant placed the purchase order with vendor Huajian Industrial, the parent company of the factory in Ethiopia. The raw materials, which included leather, thermoplastic rubber (“TPR”), pilea polyurethane(“PU”), memory foam, insole board, and non-woven material, were procured from unrelated suppliers in China. The cutting process, the stitching, and the assembly took place at the factory in Ethiopia. The cow leather from China was used to produce the upper of the shoes. It was shipped to Ethiopia as leather skins in square foot sheets. In Ethiopia, the leather skins were cut into shaped components to form unassembled uppers for the footwear. The upper components were then lasted and were assembled into the finished footwear by stitching and gluing. The TPR from China formed the outsole of the shoe. The TPR from China was formed into the finished outsole by heating the TPR material and pouring it into an outsole mold. The PU from China was used as the insole lining and sock lining. It was shipped from China as sheet yardage. The PU raw material was cut to shape, sewn, and glued to the outer surface area and insole. The memory foam from China was affixed under the sock lining for comfort. The memory foam was cut to shape and glued to the insole as part of the padded foot bed. The non-woven material for counter pocket from China was cut to shape and sewn into the shoe during assembly of the upper and insole material. The raw materials from China incorporated into the footwear also included other trims, reinforcements, and packing materials. The footware made at the factory in Ethiopia was shipped for importation into the United States. On October 8, 2018, the footwear was entered under subheadings 6403.91.9045, Harmonized Tariff Schedule of the United States Annotated (“HTSUSA”) (entry line 1), 6403.99.9065, HTSUSA (entry lines 2, 4 and 5), and 6402.99.3165, HTSUSA (entry line 3), which are all eligible for Special Indicator “D” in the Special Rate of Duty column of the HTSUS. On October 25, 2019, the entry was denied special “D” rate of duty upon liquidation as the documentation provided did not establish a double substantial transformation. ISSUE: Whether the footwear is eligible for preferential tariff treatment under the AGOA. LAW AND ANALYSIS: We note that the matter protested is protestable under 19 U.S.C. § 1514(a)(1) as a decision on the value of merchandise. The protest was timely filed, within 180 days of liquidation for the entry. See Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. 108-429, § 2103(2)(B)(ii)-(iii) (codified as amended at 19 U.S.C. § 1514(c)(3) (2006)). Further Review of this protest is properly accorded to protestant pursuant to 19 C.F.R. § 174.24(b) because the issues protested involve questions of law or fact, which have not been ruled upon. Title I of the Trade and Development Act of 2000, Pub. L. 106-200, 114 Stat, 251, May 18, 2000, referred to as the AGOA, seeks to promote trade opportunities between the United States and the countries of sub-Saharan Africa. The AGOA provides for the extension of duty-free treatment under the Generalized System of Preferences (“GSP”) to non-textile articles normally excluded from GSP duty-free treatment that are not import sensitive and the entry of specific textile and apparel articles free of duty. Ethiopia has been designated as a beneficiary sub-Saharan African country (“BSAC”) for purposes of the AGOA and may be afforded preferential treatment under the HTSUS. See General Note (“GN”) 16(a), HTSUS. GN 16(b), HTSUS, establishes that a good provided in a provision for which a rate of duty appears in the “Special” subcolumn followed by the symbol “D” in Chapters 1 through 97 of the HTSUS, is designated to be an eligible article for duty-free treatment from countries designated as beneficiary countries under the AGOA, if imported directly into the customs territory of the United States and provided that such good: is the growth, product or manufacture of a designated beneficiary sub-Saharan African country enumerated in subdivision (a) of this note, and the sum of— the cost or value of the materials produced in one or more designated beneficiary sub-Saharan African countries, plus (B) the direct costs of processing operations performed in the designated beneficiary sub-Saharan African country or any two or more designated beneficiary sub-Saharan African countries that are members of the same association of countries which is treated as one country under section 507(a)2 of the 1974 Act, is not less than 35 per centum of the appraised value of such article at the time it is entered … No article or material of a designated beneficiary sub-Saharan African country enumerated in subdivision (a) of this note and receiving the tariff treatment specified in this note shall be eligible for such duty-free treatment by virtue of having merely undergone simple combining or packing operations, or mere dilution with water or mere dilution with another substance that does not materially alter the characteristics of the article. Applying the guidance set forth in GN 16(b), HTSUS, we note that, based on the tariff classifications of the footwear, it is eligible to receive the special “D” rate of duty and is eligible to receive preferential treatment under the AGOA, provided that the additional requirements of the AGOA program are met. The footwear was imported directly into the United States from Ethiopia. We must determine whether the imported footwear is considered to be the growth, product, or manufacture of Ethiopia. The provisions of 19 C.F.R. §§ 10.171, 10.173, and 10.175 through 10.178 apply for purposes of determining whether imported merchandise qualifies for preferential treatment under the AGOA. See 19 C.F.R. § 10.178a(d). As applied, where an article is produced from materials imported into a BSAC from a non-BSAC, as here, the article is considered a “product of” the BSAC only if the imported materials are substantially transformed into a “new or different article of commerce.” 19 C.F.R. § 10.176(a). The test for determining whether a substantial transformation has occurred is whether an article emerges from a process with a new name, character, or use different from that possessed by the article prior to the processing. See Texas Instruments v. United States, 69 CCPA 151, 681 F.2d 778 (1982). In Uniroyal, Inc. v. United States, 3 CIT 220, 542 F. Supp. 1026 (1982), aff’d, 702 F.2d 1022 (Fed. Cir. 1983), the court held that a shoe upper, which was lasted in Indonesia and attained its ultimate shape, form and size there, was substantially transformed in Indonesia from sheets of leather into a substantially complete shoe prior to its exportation to the United States. In Headquarters Ruling Letter (“HQ”) H187035, dated Jan. 3, 2012, uppers were substantially transformed in the United States where the shoes were lasted, bottomed, and finished. You argue that the leather skins, TPR, an

We note that the matter protested is protestable under 19 U.S.C. § 1514(a)(1) as a decision on the value of merchandise. The protest was timely filed, within 180 days of liquidation for the entry. See Miscellaneous Trade and Technical Corrections Act of 2004, Pub. L. 108-429, § 2103(2)(B)(ii)-(iii) (codified as amended at 19 U.S.C. § 1514(c)(3) (2006)). Further Review of this protest is properly accorded to protestant pursuant to 19 C.F.R. § 174.24(b) because the issues protested involve questions of law or fact, which have not been ruled upon.Title I of the Trade and Development Act of 2000, Pub. L. 106-200, 114 Stat, 251, May 18, 2000, referred to as the AGOA, seeks to promote trade opportunities between the United States and the countries of sub-Saharan Africa. The AGOA provides for the extension of duty-free treatment under the Generalized System of Preferences (“GSP”) to non-textile articles normally excluded from GSP duty-free treatment that are not import sensitive and the entry of specific textile and apparel articles free of duty. Ethiopia has been designated as a beneficiary sub-Saharan African country (“BSAC”) for purposes of the AGOA and may be afforded preferential treatment under the HTSUS. See General Note (“GN”) 16(a), HTSUS. GN 16(b), HTSUS, establishes that a good provided in a provision for which a rate of duty appears in the “Special” subcolumn followed by the symbol “D” in Chapters 1 through 97 of the HTSUS, is designated to be an eligible article for duty-free treatment from countries designated as beneficiary countries under the AGOA, if imported directly into the customs territory of the United States and provided that such good:is the growth, product or manufacture of a designated beneficiary sub-Saharan African country enumerated in subdivision (a) of this note, andthe sum of—the cost or value of the materials produced in one or more designated beneficiary sub-Saharan African countries, plus(B) the direct costs of processing operations perf