Please mark your calendars now and join us May 11th in Washington, DC for our footwear summit focusing on how proposed footwear trade policies changes will impact our industry.    
The Headquarters Office of Customs and Border Protection ("CBP") addressed the methodology for determining the area in contact with the ground in HQ H270097 (June 30, 2016). The ruling is not a paragon of clarity.

The shoe at issue was a slip-on ballet style flat shoe for girls. It has a plastic upper and a plastic outsole with a textile overlay.  CBP's laboratory determine that plastic was the majority material in contact with the ground.  The importer protested.

The importer provided multiple private laboratory tests establishing textile as the majority material.  In these private lab tests, the powder test was used to identify the areas in contact with the ground. This meant that deep grooves, the area in front of the heel, and a flared-up edge of the toe area were excluded as not touching the ground.  The CBP lab report also excluded the area in front of the heel but did not exclude the "deeper" grooves and did not mention the flared-up edge.

 It appears that the grooves included in the CBP report were approximately 1/16 of an inch deep. No mention is made of deeper or shallower grooves. The private lab reports excluded the deeper grooves. The grooves were not covered with textile. The area in front of the heel excluded was between one-quarter and 1/8 of an inch deep.
As noted, this ruling is anything but clear. However, it does appear that grooves in the neighborhood of 1/16 of an inch deep will be deemed to be in contact with the ground. There is nothing in the ruling that confirms that deeper grooves necessarily would be excluded.

The ruling also stands for the proposition that the so-called powder and inking tests are not acceptable as a means of determining the material in contact with the ground.
We understand that the importer is challenging the denied protest in the Court of International Trade. In the meantime, it appears that clarification of this ruling would be useful.

New Balance is the latest importer to be hit with a lawsuit in California concerning "Made in USA" labels.

The lawsuit points out that New Balance acknowledges in its marketing that it labels its footwear as domestic when at least 70% of costs represent US labor and materials. Obviously, this does not satisfy the requirements of California law which, as amended, allows no more than five or 10 percent foreign content.
The lawsuit claims that New Balance charges a premium for shoes labeled as domestic in origin. According to the complaint, footwear labeled "Made in USA" is priced as high as $369 while imported shoes sell for less than $100.
While it is too early to predict the outcome of this litigation with any certainty, it is useful to note that similar cases have resulted in small payments to consumers. Given New Balance's aggressive claims of domestic origin, it is not likely that this litigation will be as easily resolved.
CBP recently initiated two penalty cases in the court of international trade.

The first case involves allegations of transshipment of apparel made in China. The importer argued that it exercised reasonable care in claiming origin in countries other than China because in part it had asked its buying agent to confirm the origin.  CBP was not impressed. 

The importer also pointed out that it had begun to request factory visits, pictures and videos. In addition, the importer created a compliance manual and designated a Customs/Logistics manager, all after the fact. Given this information, CBP reduced the original gross negligence claim to one of simple negligence and the penalty to an amount equal to 10 percent of the entered value, one-half of the statutory maximum. When the importer failed to make payment, CBP initiated this collection action.

             The second case involves unsubstantiated NAFTA claims. It appears that this matter arose from what the complaint describes as an attempted prior disclosure.  In the prior disclosure, the importer admitted that a material used to produce the imported good was not originating. The importer argued that although not originating goods, the apparel was eligible for duty-free treatment under a Tariff Preference Lever ("TPL") However, the importer neglected to make the TPL claim before the entries became final.              

Frequently, CBP grants prior closure status to an importer who makes a prior disclosure that does not meet all requirements. Further, it would not be unusual for CBP to recognize that the subject merchandise qualified for duty-free treatment.  Why CBP is pursuing what appears to be to be a hyper-technical approach in this instance is not clear from the complaint. 

FDRA produces a monthly materials cost report so your product development teams can get more line of sight on current and future costs. As new materials and new designs keep coming, make sure you and your team take advantage of this important data report!  

Official notices of extension, suspension and liquidation are now available at CBP's homepage and Trade page have a link to the site.

One difference between the electronic and paper notice is that although the electronic notice indicates decrease or increase, it does not provide the amount of the change. A lawsuit asserting that the notice is defective because it is not searchable by importer of record name. It is searchable by IOR number.

In September, Reebok filed an action before the International Trade Commission ("ITC") asserting that TRB Acquisitions, various RBX entities and Elite Performance Footwear were importing footwear that violated its patents covering athletic shoe technology.
The ITC has terminated the investigation based on the issuance of consent orders to which Reebok and the respondents agreed. 82 Federal Register 8209 (January 24, 2017). 


CBP has published notice of changes in the test program covering post-summary corrections ("PSC's").  The changes appear in the Federal Register for January 9, 2017, at page 2385.
One of the major changes relates to the requirement that duties, fees and taxes be submitted within three business days of filing a PSC. That requirement has been eliminated except with respect to antidumping and countervailing duties.
Another change allows a PSC to declare that a previously filed Type 03 entry is a Type 02.
The corrections clarifies that the prohibition against using a PSC to make a post-entry NAFTA claim applies to all preference programs.

CEE IMPLEMENTATION. CBP has announced that the comment period for the regulations implementing the CEE's has been extended to March 20, 2017.  82 Federal Register 8588 (January 27, 2017). 


The Customs Report is a newsletter of customs legal, administrative and other developments affecting importers of footwear prepared by McGuireWoods, LLP, 1345 Avenue of the Americas, New York, New York 10105, (212) 548-7020, as a service for FDRA members and other interested parties. Matters reported on or summarized herein may not be construed as legal advice on specific situations.

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