Merchandise imported and duty paid, thereafter exported and returned is subject to duties unless it qualifies for a limited number of exemptions. One of the exemptions is subheading 9801.00.20, which provides duty-free treatment for merchandise previously imported duty paid when reimported without having been advanced in value or improved in condition while abroad exported under a lease or similar use agreement and reimported by, or for the account of, the original importer.

SGS Sports, Inc. v. United States, Slip Op. 20-113 (August 7, 2020) addresses an importer’s claim that CBP wrongly denied duty-free treatment to the reimports.

The subject merchandise, which consist of swimwear and swim gear, was imported into United States, duty paid and immediately exported to Canada for warehousing and inventory management pursuant to an agreement with a related entity. The merchandise was thereafter reimported.

The decision first holds that the importer failed to establish a sufficient connection between the original importations and the reimportations. The decision goes on to find a failure to establish that the subject merchandise was not advanced in value or improved on condition while in Canada. The court did not really decide the question of whether the warehouse agreement was a use agreement. The importer conceded it not a lease. The court found similar problems with respect to whether the goods were imported and reimported by the same party.

In short, the court found that the importer failed to establish any of the elements for classification in subheading 9801.00.20.

This decision illustrates the inherent difficulty in qualifying consumer goods with multiple styles, sizes, colors, etc. for duty-free treatment under 9801.00.20.

The importer could have avoided having to pay duty twice by bringing the goods in initially under an Immediate Export or a Transportation and Export entry.
The following is a brief description of classification decisions recently published by CBP.

The footwear in NY N313068 (August 5, 2020) is described as "Athletic Work Soft Toe".  The upper is a man-made mesh textile. The R/P traction sole is described as flexible.  The shoe has a padded collar, and cushioned collar and insole. CBP finds classification in subheading 6404.11.90 (20%)(4A).

NY N313167 (August 7, 2020) addresses the classification of waders. The waders consist of textile overalls attached to R/B boots. The boots have a Thinsulate lining. The boots are made in China. The overall tops are made in Taiwan and final assembly takes place in Taiwan.   

The importer asserted that the outer soles have a leather flocking application. However, examination by CBP with the aid of magnification found barely detectable amounts of leather flocking. CBP therefore ignored the flocking for classification purposes.

CBP finds classification in submitting 6404.19.20 (37.5%), as protective footwear.

The ruling does not address origin. However, a recent ruling on almost identical facts held that the origin of waders is the country where the boot portion was produced. NY N307378 (December 4, 2019)

Origin questions are also found in NY N313474 (August 20, 2020). The footwear is a textile upper sandal valued at over $12. Classification falls in subheading 6404.19.90 (9%) (4A).

The ruling includes a description of the rules of origin pointing out that where the assembly process in a second country is a minor one, a substantial transformation has not taken place. Here the ruling indicates that all components of the sandal were made and assembled in China. It does not state where final assembly took place or indeed whether it took place in a second country. However, it would be strange indeed to review the rules of origin if final assembly had taken place in China. 
HQ H309127 (August 3, 2020) addresses two value issues, first sale and the dutiability of royalty payments.

The imported products are various educational materials produced in one country and shipped from a second country. The goods are shipped from an unrelated manufacturer/seller in the first country to a middleman related to the importer in a second country. Thereafter the goods are sold to the importer. The terms of sale between the manufacturer and the middleman are FOB. Title and risk of loss passes to the middleman when the merchandise is delivered to the middleman's warehouse in the second country. The terms of sale between the middleman and the importer are delivered to the place of destination in the United States.

CBP denied first sale treatment. The sticking point sale was the possibility that some of the merchandise could be shipped from the second country to places outside the United States. Therefore, CBP ruled that the sales from the manufacturer to the middleman were not necessarily sales for exportation to United States.

The royalties were paid in connection with the right to use trademarks and copyrights associated with the educational materials. The royalties represent a percentage of the sales price of each article sold by the importer. No royalties are paid to the manufacturer and the middleman bears no responsibility for the royalties. The licensor is not related to the manufacturer/seller, middleman or importer.

In keeping with many rulings on royalties for trademarks and copyrights paid to third parties, CBP ruled that the royalty payments are not dutiable.
CBP has extended the transition period for complying with the requirement that goods originating in Hong Kong be labeled "Made in China". The transition period now extends through November 9, 2020. CSMS #43729326 (August 21, 2020).

Keep in mind that this requirement is limited to origin labeling. Goods originating in Hong Kong are not subject to 301 duties.
The Customs Report is a newsletter of customs legal, administrative and other developments affecting importers of footwear prepared 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.

1319 F Street, NW
Suite 700
Washington, DC 20004
(F) 202.638.2615