Footwear Customs Updates You Need Now!
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FIRST SALE RULINGS
Two recent Headquarters Office rulings on first sale suggest that Customs and Border Protection ("CBP") may be taking a somewhat less liberal view on the consequences of "flash title". The existence of flash title can lead to the conclusion that there was only a single sale for export-from the middleman to the importer.
In the first ruling, HQ H273866 (April 5, 2017), the transaction involved related parties manufacturer, middleman, and importer. The terms of sale, if indicated on the PO's and invoices, were either FOB Origin or FOB Port of Export, i.e., flash title.
The documentation of the transaction between the importer and the middleman were less than optimal. Further, the ruling looked at a transaction involving a third-party manufacturer. As you might expect, the documentation in the third-party transaction was much more extensive. CBP granted first sale for the third-party transactions but denied it for the related party transactions.
The take away here is that related party transactions must be documented to the same degree as third-party transactions. This is particularly the case where title passes from the manufacture to the middleman and from the middleman to the importer at the same time.
 
CBP granted first sale treatment in HQ H278748 (March 17, 2017). Here, as in the previous ruling, title passed from the source of the goods to the middleman and from the middleman to the importer under the same terms. Nevertheless, CBP held that there was a bona fide sale between the middleman and the source of the goods and granted first sale treatment.

The difference between the two rulings is the level of detail in the transaction documents. In the second ruling, the documentation was extensive. As described in the ruling, the documentation submitted illustrates the flow of the order process from one party to the next and the flow of the payment process. CBP described each as following a "reasonable and expected pattern".
Based on these rulings, it appears to us that the existence of "flash title" does not necessarily eliminate first sale, but it does make it somewhat more difficult to persuade CBP that first sale is appropriate. This is particularly the case if there is any anomaly in any of the documentation and if the level of detail is lacking in the transaction between the source of the goods and the middleman.


MUST ATTEND FOOTWEAR SOURCING SUMMIT!
 
Please mark your calendars now and join us
for a full day summit at the New York Stock Exchange exploring global footwear sourcing, supply chain and factory compliance issues and trends.
 
BUY AMERICAN

Given the increased focus on "Made in USA" and "Buy American", a recent CBP origin decision warrants a quick review.
The decision, HQ H284685 (May 31, 2017), appears in the Federal Register for June 7, 2017 and in the Customs Bulletin for June 21, 2017. It involves the origin of surgical and isolation gowns produced in the Dominican Republic.
The gowns are produced using fabric of China, India or Vietnam origin. The imported fabric is cut, ultra-sonically welded or sewn to create a gown and knit cuffs are sewn to the arms. Obviously, the country of origin is the Dominican Republic.
Under Federal Acquisition Regulations, products that originate in a trade agreement country may be eligible for treatment as "American" for some by "Buy American" purposes. This treatment is limited. The rule of origin is the basic rule of origin and not the free trade agreement rule of origin.

CLASSIFICATION DECISIONS
The following is a brief summary of recent classification rulings.
The first of the rulings appears in the Customs Bulletin for June 7, 2017. In HQ H 242873 (Proposed), CBP would revoke NYRL N22103 (July 18, 2012). That ruling held that certain foot sleeves were classified as hosiery in HTS subheading 6115. 96.90 (14.6%). The foot sleeves cover various areas of the foot for purposes of cushioning only and may not be worn without socks or shoes to cover them. There is no fabric covering on the toes, heels, or ankles. The importer argued that the sleeves were not hosiery or substitutes for hosiery. CBP agreed. According to CBP, the sleeves do not sufficiently cover the area of the foot or toes to warrant classification as hosiery. CBP held that the foot sleeves were classified and in subheading 6307.90.98 (7%).

NYRL N276490 (June 2, 2017) addressed the classification of an in-line skate boot. The boot has a leather upper and has provision for the attachment of an aluminum chassis. The boot will be imported and offered for sale with and without the chassis, but without wheels. CBP ruled that the absence of wheels required classification in Chapter 64 as sports footwear, specifically in HTS subheading 6403.19.70. (Free). With wheels, classification would fall in Chapter 9J.

Slippers are the subject of NYRL N28517 (June 13, 2017). The slippers have a textile upper and a R/P outsole with textile flocking. The slipper has a fleece lining. The ruling does not indicate whether the fleece lining covers the entire foot. The slipper was found to be classified in HTS subheading 6404.19.37 (12.5%). The fact that the ruling does not mention the possibility of a protective classification illustrates that slippers, as indoor footwear, are not classified as protective.
 
NYRL N286574 (June 14, 2017) concerns the classification of a man's closed toe/closed heel, oxford height lace-up shoe with a R/P outersole. The ESAU is 80/20, R/P, textile. The importer argued that the flat portion of the sole is designed to fit a flat bicycle pedal and sought classification as sports footwear. CBP disagreed. The ruling points out that the outersole has no cycling cleats and no provision for the attachment of such. CBP found classification in HTS subheading 6420.99.90 (20%), as the first cost exceeded $12/pr.

Mid-West and West Coast Companies!
CUSTOMS AND TRADE WORKING GROUP MEETING!
 
FDRA will hold an important trade and customs working group meeting in Portland on Thursday August 17th to provide critical updates and get feedback on issues impacting footwear companies.  We urge all footwear companies on the west coast to send their customs and/or trade teams to attend and participate. 

PREFERENCE PROTESTS
CBP has issued instructions on resubmitting protests for post-importation preference claims rejected as non-protestable. CSMS #17-000333 (June 8, 2017).
The resubmission must be filed within 180 days of the issuance of the February 15, 2017 memorandum, i.e., on or about August 14, 2017. If the original protest was rejected as non-protestable, importers may request re-liquidation of the entry through a new protest or in a letter.   The protest or letter should include the following:
*   Statement that this is a resubmission of a previous preference claim that was rejected as non-protestable.
*   A copy of the original protest showing that it was rejected as non-protestable.
*   Certificate of origin (or data elements) for the tariff-shift model FTAs that are subject to section 514: Australia FTA and Singapore FTA
*   Affidavit in lieu of a certificate of origin for: Bahrain FTA, Israel FTA, Jordan FTA, and Morocco FTA.
Re-submission may be electronically through the ACE Protest Module via the ACE Portal or paper to the CBP Port of Entry.
This process does not apply to preference programs that by law have a post-importation provision: These include CAFTA, Chile, Columbia TPA, Korea TPA, NAFTA, Oman FTA, Panama FTA, and Peru TPA.

FTC REGULATIONS - PROPOSED CHANGES
The Federal Trade Commission ("FTC") has announced a change in the regulations promulgated under the Textile Products Identification Act. 82 Federal Register 29251 (June 28, 2017).
The proposed change deletes a requirement that the owner of a registered trademark that uses the mark in lieu of an RN, must furnish a copy of the registration to the FTC. In addition, the change deletes the requirement that only trademarks that are so-called house marks may be used for this purpose. It is not clear whether a company could use multiple trademarks.
 
A copy of the section showing the proposed changes follows:
ยง 303.19 Name or other identification required to appear on labels. (a) The name required by the Act to be used on labels shall be the name under which the person is doing business. Where a person has a word trademark, registered in the United States Patent Office, such word trademark may be used on labels in lieu of the name otherwise required:. No trademark, trade names, or other names except those provided for above shall be used for required identification purposes.



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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JULY 2017  
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 Sourcing Summit
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