Preferential Treatment of Brassieres Under the Caribbean Basin Economic Recovery Act

AGENCY:

Customs and Border Protection, Department of Homeland Security.

ACTION:

Final rule.

SUMMARY:

This document adopts as a final rule amendments to the Customs and Border Protection (CBP) Regulations to implement the standards for preferential treatment for brassieres imported from Caribbean Basin countries. This rule was initially published as an interim regulation in the Federal Register on October 4, 2001, as T.D. 01-74, and later amended by T.D. 03-29 published in the Federal Register on September 30, 2003.

T.D. 01-74 set forth interim amendments to the CBP Regulations to implement those provisions within the United States-Caribbean Basin Trade Partnership Act (CBTPA) which established the standards for preferential treatment for brassieres imported from CBTPA beneficiary countries. T.D. 03-29 amended the brassieres provision set forth in T.D. 01-74 to reflect the amendments to section 213(b) of the Caribbean Basin Economic Recovery Act (the CBERA) that were made by section 3107 of the Trade Act of 2002. T.D. 03-29 also included a number of other changes to the CBERA implementing regulations for brassieres to clarify a number of issues that arose after their original publication.

EFFECTIVE DATES:

Final rule effective on December 30, 2004.

FOR FURTHER INFORMATION CONTACT:

Operational issues: Robert Abels, Office of Field Operations ((202) 344-1959).

Legal issues: Cynthia Reese, Office of Regulations and Rulings ((202) 572-8790).

SUPPLEMENTARY INFORMATION:

Background

Textile and Apparel Articles Under the Caribbean Basin Economic Recovery Act

The Caribbean Basin Economic Recovery Act (the CBERA, also referred to as the Caribbean Basin Initiative, or CBI, statute codified at 19 U.S.C. 2701-2707) instituted a duty preference program that applies to exports of goods from those Caribbean Basin countries that have been designated by the President as program beneficiaries. On May 18, 2000, the President signed into law the Trade and Development Act of 2000, Pub. L. 106-200, 114 Stat. 251, which included as Title II the United States-Caribbean Basin Trade Partnership Act, or CBTPA. The CBTPA provisions included section 211 which amended section 213(b) of the CBERA (19 U.S.C. 2703(b)) in order to, among other things, provide in new paragraph (2) for the preferential treatment of certain textile and apparel articles, specified in subparagraph (A), that had previously been excluded from the CBI duty-free program. The preferential treatment for those textile and apparel articles under paragraph (2)(A) of section 213(b) involves not only duty-free treatment but also entry in the United States free of quantitative restrictions, limitations, or consultation levels for all qualifying goods. Paragraph (2)(A) of the statute includes, in clause (iv), a specific provision covering brassieres from designated CBTPA beneficiary countries.

On October 2, 2000, the President signed Proclamation 7351 to implement the provisions of the CBTPA. This Proclamation, which was published in the Federal Register (65 FR 59329) on October 4, 2000, modified the Harmonized Tariff Schedule of the United States (HTSUS) by, among other things, the addition of a new Subchapter XX to Chapter 98 to address the majority of the textile and apparel provisions of the CBTPA. Within that Subchapter XX, the brassieres provision of paragraph (2)(A)(iv) of the CBTPA statute is dealt with in U.S. Note 2(d) and in subheading 9820.11.15.

On October 5, 2000, the U.S. Customs Service (now U.S. Customs and Border Protection (CBP)) published in the Federal Register (65 FR 59650) T.D. 00-68 to amend the Customs and Border Protection (CBP) Regulations on an interim basis in order to set forth basic legal requirements and procedures that apply for purposes of obtaining preferential treatment of textile and apparel articles pursuant to the provisions added to section 213(b) by the CBTPA. Those interim regulations, consisting of §§ 10.221 through 10.227 of the CBP Regulations (19 CFR 10.221 through 10.227), include, in paragraph (a) of § 10.223, a list of the various groups of articles that are eligible for preferential treatment under the statute. Paragraph (a)(6) of § 10.223 specifically addressed the basic CBTPA brassieres provision of subclause (I) of paragraph (2)(A)(iv) of the statute and subheading 9820.11.15 of the HTSUS. The regulatory texts set forth in T.D. 00-68 did not address subclauses (II) and (III) of paragraph (2)(A)(iv) of the statute and U.S. Note 2(d) of Subchapter XX, Chapter 98, HTSUS, because under the terms of the statute those provisions applied only to articles entered on or after October 1, 2001.

On October 4, 2001, CBP (as legacy Customs) published in the Federal Register (66 FR 50534) T.D. 01-74 to amend the CBP Regulations on an interim basis in order to implement the terms of subclauses (II) and (III) of paragraph (2)(A)(iv) of the statute and U.S. Note 2(d) of Subchapter XX, Chapter 98, HTSUS. Those regulatory amendments involved primarily the addition of a new § 10.228 which set forth specific rules for the application of the minimum 75 and 85 percent U.S. fabric component content requirements under subclauses (II) and (III) that took effect for purposes of preferential treatment of brassieres described in subclause (I) starting on October 1, 2001.

T.D. 01-74 also amended the introductory text in § 10.222 to account for the newly created § 10.228. In addition, T.D. 01-74 amended paragraph (a)(7) of § 10.223 to exclude brassieres from the apparel articles that are constructed of fabrics or yarns that are considered to be in “short supply” for purposes of Annex 401 of the NAFTA. We note that while T.D. 01-74 amended paragraph (a)(6) of § 10.223 by adding a proviso at the end to indicate that the requirements of new § 10.228 also must be satisfied, paragraph (a)(6) was later amended in its entirety by T.D. 03-12, published in the Federal Register (68 FR 13827) on March 21, 2003.

T.D. 01-74 also amended the Appendix to Part 163 of the CBP Regulation (19 CFR 163), which sets forth a list of entry records (that is, records that are required by statute or regulation for the entry of merchandise—the “(a)(1)(A)” list), by adding a listing that covers the CBTPA declaration of compliance for brassieres.

Trade Act of 2002 Amendments

On August 6, 2002, the President signed into law the Trade Act of 2002 (the “Act”), Pub. L. 107-210, 116 Stat. 933. Section 3107(a) of the Act made a number of changes to the textile and apparel provisions of paragraph (2)(A) of section 213(b) of the CBERA. The amendments made by section 3107(a) of the Act included a revision of the brassieres provisions of paragraph (2)(A)(iv) of the statute which involved the following textual changes: (1) Subclause (I) was amended by the addition of exception language regarding articles covered by certain other clauses under paragraph (2)(A); and (2) subclauses (II) and (III) were amended by replacing each reference to “fabric components” with “fabrics,” by adding exclusion language regarding findings and trimmings after each reference to fabric(s), and by adding various references to articles that are “entered” and that are “eligible” under clause (iv). The principal effects of the language changes within subclauses (II) and (III) were: (1) Adoption of a cost or value percentage standard based on a comparison between U.S. fabric and all fabric (rather than based on a comparison between U.S. fabric components and all fabric) contained in the articles; and (2) removal of the requirement that the articles must be both produced and entered in the same year. The amended paragraph (2)(A)(iv) text now reads as follows:

(iv) Certain Other Apparel Articles.—(I) General Rule.—Subject to subclause (II), any apparel article classifiable under subheading 6212.10 of the HTS, except for articles entered under clause (i), (ii), (iii), (v), or (vi), if the article is both cut and sewn or otherwise assembled in the United States, or one or more CBTPA beneficiary countries, or both.

(II) Limitation.—During the 1-year period beginning on October 1, 2001, and during each of the 6 succeeding 1-year periods, apparel articles described in subclause (I) of a producer or an entity controlling production shall be eligible for preferential treatment under subparagraph (B) only if the aggregate cost of fabrics (exclusive of all findings and trimmings) formed in the United States that are used in the production of all such articles of that producer or entity that are entered and eligible under this clause during the preceding 1-year period is at least 75 percent of the aggregate declared customs value of the fabric (exclusive of all findings and trimmings) contained in all such articles of that producer or entity that are entered and eligible under this clause during the preceding 1-year period.

(III) Development of Procedure to Ensure Compliance.—The United States Customs Service shall develop and implement methods and procedures to ensure ongoing compliance with the requirement set forth in subclause (II). If the Customs Service finds that a producer or an entity controlling production has not satisfied such requirement in a 1-year period, then apparel articles described in subclause (I) of that producer or entity shall be ineligible for preferential treatment under subparagraph (B) during any succeeding 1-year period until the aggregate cost of fabrics (exclusive of all findings and trimmings) formed in the United States that are used in the production of such articles of that producer or entity entered during the preceding 1-year period is at least 85 percent of the aggregate declared customs value of the fabric (exclusive of all findings and trimmings) contained in all such articles of that producer or entity that are entered and eligible under this clause during the preceding 1-year period.

On November 13, 2002, the President signed Proclamation 7626 (published in the Federal Register at 67 FR 69459 on November 18, 2002) which included, among other things, modifications to the HTSUS to implement the changes to section 213(b)(2)(A) of the CBERA made by section 3107(a) of the Act. Those modifications included an amendment of U.S. Note 2(d) to Subchapter XX, Chapter 98, HTSUS, to reflect the changes to subclauses (II) and (III) of paragraph (2)(A)(iv) of the statute discussed above. The Proclamation further provided that this amendment of U.S. Note 2(d) was effective with respect to goods entered, or withdrawn from warehouse for consumption, on or after October 1, 2002.

Interim Regulatory Amendments in T.D. 03-29

As a consequence of the statutory amendments described above and as a result of the modifications to the HTSUS made by Proclamation 7626, the interim regulatory provisions published in T.D. 01-74 no longer fully reflected the current standards that apply for purposes of preferential treatment of brassieres under the CBERA. In this regard, the effect of the statutory changes required changes throughout the text of interim § 10.228. Moreover, following publication of T.D. 01-74, some other issues came to the attention of CBP that warranted additional changes to the interim § 10.228 text.

Accordingly, in T.D. 03-29, CBP set forth an interim rule document revising interim § 10.228 in its entirety to reflect the amendments to the statute and to clarify or otherwise improve the previously published text. T.D. 03-29 was limited to the text of interim § 10.228 and therefore did not address the change that the Act made to paragraph (2)(A)(iv)(I) of the statute; that provision was reflected in § 10.223(a)(6) within the interim CBTPA regulations published in T.D. 00-68, and later amended by T.D. 03-12, published in the Federal Register on March 21, 2003. That change is discussed in a separate final rule document that addresses the other statutory changes to the CBERA made by the Act.

The interim regulatory changes to § 10.228 contained in T.D. 03-29 are restated below.

Amendments To Reflect the Statutory Changes

The changes to § 10.228 as set forth in T.D. 03-29 in response to the changes made to paragraph (2)(A)(iv) of the statute by section 3107(a) of the Act were as follows:

1. The definition of “fabric components formed in the United States” in paragraph (a)(3) was replaced by a definition of “fabrics formed in the United States” to reflect the fact that subclauses (II) and (III) of the statute no longer refer to fabric “components.” Similarly, the definition of “cost” in paragraph (a)(4) and the definition of “declared customs value” in paragraph (a)(5) were modified to refer simply to “fabrics.”

2. The following changes were made to paragraph (b) which concerns the 75/85 percent U.S. fabric content requirements for preferential treatment in subclauses (II) and (III) of the statute:

a. In the introductory text of paragraph (b)(1), reference was made to the year that begins on “October 1, 2002” (rather than “October 1, 2001”) to reflect the applicable effective date set forth in Proclamation 7626.

b. Throughout the paragraph (b) texts, all references to U.S.-formed “fabric components” were replaced by references to U.S.-formed “fabric,” the words “produced and” were removed from the expression “produced and entered,” and the parenthetical reference “(exclusive of all findings and trimmings)” has been added as appropriate after references to “fabrics” and “fabric.” These changes simply conform the regulatory text to the wording changes in the statute.

c. Paragraph (b)(1)(i), which concerns the 75 percent requirement of subclause (II) of the statute, was changed to refer to articles that are “entered as articles described in § 10.223(a)(6),” and paragraph (b)(1)(ii), which concerns the 85 percent requirement of subclause (III) of the statute, was changed to refer to articles that “conform to the production standards set forth in § 10.223(a)(6).” These wording changes are in response to the statutory wording changes regarding articles that are “entered” and that are “eligible” under clause (iv). The differences in wording in the two regulatory texts were necessary in order to enable the 85 percent standard to operate. As explained in T.D. 03-29, CBP notes that if the universe of articles that are looked at for purposes of assessing compliance with the 85 percent standard is the same as that used for purposes of the 75 percent standard (that is, articles that were entered under the HTSUS subheading that applies to articles described in paragraph (2)(A)(iv)(I) of the statute and § 10.223(a)(6)), it would be impossible in the first year following the statutory changes (that is, starting on October 1, 2002) for a new producer or entity to enter the program, or for a producer or entity that failed to meet the 75 percent standard in the previous year to reenter the program. This is because application of the 85 percent standard presupposes a failure to have met the 75 percent standard in the preceding year. This would mean that there could not be any entries in the next year under the HTSUS subheading that applies to articles described in paragraph (2)(A)(iv)(I) of the statute and § 10.223(a)(6) against which compliance with the 85 percent standard can be determined. The wording used in paragraph (b)(1)(ii) of the regulatory text (which is also reflected in the general statement of the paragraph (b)(1) introductory text and in the general rule in paragraph (b)(2)(i)(A)), by referring to articles that meet the U.S./Caribbean cutting and assembly production requirement (regardless of the HTSUS subheading under which they are entered), is intended to avoid this anomalous result.

d. In the general rules of application set forth in paragraph (b)(2)(i), two new subparagraphs (C) and (D) were added to clarify the application of the different regulatory language for the 75 and 85 percent standards discussed at point c. above, and former subparagraph (D) was removed because it concerned the year of production which is no longer relevant under the amended statutory text.

e. Also in paragraph (b)(2)(i), former subparagraph (C) was redesignated as subparagraph (E) and the text was modified, and a new subparagraph (L) was added, primarily to reflect that the findings and trimmings referred to in the context of brassieres are not limited to foreign findings and trimmings.

f. Also in paragraph (b)(2)(i), former subparagraph (E) was redesignated as subparagraph (G) and the text, which concerns a new producer or new entity controlling production, was revised to incorporate the new wording (“entered as articles described in § 10.223(a)(6)”) of paragraph (b)(1)(i) and to clarify what CBP believes is a necessary conclusion under the statutory text, that is, that in the described context the producer or entity must first meet the 85 (rather than the 75) percent standard.

g. In paragraph (b)(2)(ii), a new Example 2 and a new Example 3 were added to cover new subparagraphs (C) and (D) of paragraph (b)(2)(i), and Examples 2 through 6 consequently were redesignated as Examples 4 through 8.

h. Also in paragraph (b)(2)(ii), redesignated Example 6 was revised in order to replace the former “produced and entered” in the same year scenario with a factual pattern addressing the 75 versus 85 percent standard and entry in different years.

i. Also in paragraph (b)(2)(ii), redesignated Example 7 was revised in order to reflect that the 85 percent standard (rather than the 75 percent standard) applies to a new producer or entity controlling production, as stated in redesignated and revised subparagraph (G) of paragraph (b)(2)(i).

3. In paragraph (c)(3)(i), the text of the declaration of compliance was modified by removing each reference to “components” and by removing the words “produced and” before the word “entered” in blocks 4 and 6, in each case to reflect changes in statutory language.

4. Finally, in paragraph (d)(1)(v), the next to last sentence was modified to state that the inventory records must indicate that the required production occurred (rather than “identify the date of” production), and the last sentence was modified to refer to purchases made during the “accounting period” (rather than “year”), because the year of production is not relevant under the amended statute.

Other Amendments

In addition to the changes described above that result from the changes made to the statute by section 3107(a) of the Act, CBP also included a number of other changes in the revised text of § 10.228 set forth in T.D. 03-29. These additional changes, which were intended to clarify or otherwise improve the previous interim regulatory texts, were as follows:

1. The definition of “cost” in paragraph (a)(4) and the definition of “declared customs value” in paragraph (a)(5) were revised for purposes of clarity, in particular in order to include rules covering cases in which there is no price based on an exportation to a CBTPA beneficiary country.

2. The definition of “year” in paragraph (a)(6) was reworded for purposes of clarity.

3. In Example 1 under paragraph (b)(2)(ii), the words “in the first year” were added to the scenario in the first sentence to clarify that the year in question is one during which the 75 percent standard must be met.

4. In Example 5 under paragraph (b)(2)(ii), the references to foreign origin straps were replaced by references to “strips and labels” to ensure that the example is clearly directed to findings and trimmings and not to materials that are considered to be components of brassieres.

5. In paragraph (c)(3)(i), the text of the declaration of compliance was modified by replacing the words “all articles” with “brassieres” in blocks 4 through 6 and by simplifying the wording within block 6.

6. Finally, in paragraph (c)(3)(ii), the subparagraph (E) instruction for completion of block 6 was removed in light of the simplification of the block 6 text, and former subparagraph (F) consequently was redesignated as (E).

CBP is now publishing one document that adopts, as a final rule, the § 10.228 provisions contained in T.D. 03-29 and the other regulatory changes pertaining to brassieres under the CBTPA that were published in T.D. 01-74. This final rule document also summarizes and responds to the public comments previously submitted on the changes to §§ 10.222 and 10.223(a)(7) published in T.D. 01-74 and addresses the comments submitted on the revised § 10.228 text set forth in T.D. 03-29. Because CBP significantly modified § 10.228 in T.D. 03-29, CBP did not consider or address any public comments previously submitted on the text of § 10.228 as published in T.D. 01-74 that were addressed by statutory changes.

Discussion of Comments in Response to T.D. 01-74

A total of 8 commenters responded to the solicitation of public comments in the October 4, 2001, interim rule document referred to above. The comments submitted are summarized and responded to below. To the extent that the comments received regarding § 10.228 were not addressed by the changes made in T.D. 03-29, CBP has responded.

We note that after T.D. 01-74 amended § 10.223(a)(6), T.D. 03-12 again amended § 10.223(a)(6). Therefore, the change to § 10.223(a)(6) and the comments submitted regarding that change are discussed in a separate final rule document that addresses the other statutory changes to the CBERA made by the Trade Act of 2002.

Exclusion of Brassieres From Short Supply Provision

Six commenters disagree with the amendment to § 10.223(a)(7), which excludes brassieres conforming to the description set forth in § 10.223(a)(6) from receiving preferential treatment under the CBTPA short supply provision found in revised § 213(b)(2)(A)(v)(I) of the CBERA (and § 10.223(a)(7)). The specific points made by the commenters on this issue are set forth below.

Comment: There is nothing in the CBTPA or its legislative history to support CBP's interpretation in regard to this issue. While Congress did create a separate provision for brassieres in the CBTPA, with a minimum United States fabric content requirement, there is no evidence that Congress also meant to disqualify brassieres made of fabrics that have already been determined to be in short supply in the U.S., such as silk, from CBTPA eligibility. CBP's interpretation has the absurd consequence of precluding a CBTPA producer or entity that make only silk brassieres from receiving CBTPA treatment even though no silk is made in the United States. Congress intended that the short supply provision be applied equally to all garments.

CBP's Response: As stated in the preamble of the interim regulations, § 10.223(a)(7) provides for apparel articles constructed of fabrics or yarns which for purposes of Annex 401 of the NAFTA are deemed to be in “short supply.” There is no list of “short supply” fabrics or yarns for purposes of NAFTA. The determination of these “short supply” fabrics or yarns is based upon the various provisions of NAFTA and whether, under NAFTA, for the particular apparel article at issue, certain fabrics or yarns are explicitly permitted to be sourced from outside the NAFTA parties for use in the production of an “originating” good by omission of the fabrics or yarns from the list of excluded materials in the rule of origin for the particular apparel article. If sourcing of certain fabrics or yarns outside the NAFTA parties is allowed, then those fabrics or yarns are deemed to be in “short supply” for that apparel article.

In the case of brassieres under NAFTA, no restrictions or limitations apply regarding fabrics or yarns. Fabrics and yarns may be sourced from anywhere. The only requirement under Annex 401 is that articles classified in subheading 6212.10, HTSUS, must be “both cut (or knit to shape) and sewn or otherwise assembled in the territory of one or more of the NAFTA parties.” CBP does not agree with the presumption that since no restrictions exist, then all fabrics or yarns must be in “short supply.” If that presumption were true, § 10.223(a)(6) would be rendered meaningless. Accordingly, CBP concludes that the amendment to § 10.223(a)(7) of clarifying language to exclude articles described in § 10.223(a)(6) is appropriate.

Comment: If CBP insists that the CBTPA brassiere provision is sui generis, standing alone, and must be read divorced from the rest of the statute, CBP should make clear that the separate CBTPA provisions relating to “findings and trimmings,” de minimis, and elastomeric yarn also do not apply to brassieres classified in subheading 6212.10, HTSUS.

CBP's Response: CBP disagrees with the assertion that the CBTPA provisions relating to “findings and trimmings,” de minimis, and elastomeric yarn do not apply to brassieres classified in subheading 6212.10, HTSUS. These provisions of the CBTPA clearly do apply to the provision of the CBTPA specific to brassieres, as well as the other various provisions described in paragraph (b)(2)(A) of amended section 213. These special rules refer to eligibility for “preferential treatment under this paragraph.” The paragraph referred to in these contexts is paragraph (b)(2) of amended section 213, and since the brassiere provision is part of paragraph (b)(2), there is no doubt these “special rules” are applicable to goods described in that provision.

Comment: CBTPA provisions that exempt, exclude or deem products ineligible for preferential treatment do so by identifying the product by HTS [HTSUS] number. Had Congress wanted to exclude brassieres of subheading 6212.10, HTSUS, from receiving duty-free treatment under the short supply provision found in § 213(b)(2)(A)(v)(I) of the CBERA, they would have included a specific provision to that effect. An example of a specific limitation in a CBTPA provision is the “findings and trimmings” provision where by explicit reference it is stated that elastic strips are findings and trimmings if “less than one inch in width and used in the production of brassieres.” In fact, the reference to brassieres in the “findings and trimmings” provision confirms that Congress intended for brassieres to be entitled to preference through a variety of CBTPA provisions.

CBP's Response: This comment has been addressed, in part, in the above responses. In addition, however, it is CBP's view that although the “current short supply” provision in the CBTPA does not encompass brassieres based upon the application of the “short supply” provisions in Annex 401 of the NAFTA, the language in § 211(b)(2)(A)(v), as written, would allow for the designation of new or additional fabrics or yarns as in “short supply” for apparel articles including brassieres. If, as suggested by the commenter, Congress had included language in § 211(b)(2)(A)(v)(I) to exclude brassieres of subheading 6212.10, HTSUS, then brassieres would be excluded from possible application of 211(b)(2)(A)(v)(II), thus precluding the designation of new or additional fabrics or yarns as in “short supply” for brassiereres.

Comment: The CBTPA and the Africa Growth and Opportunity Act (AGOA) are both part of the Trade and Development Act of 2000. While the CBTPA includes both short supply and brassiere provisions, the AGOA contains short supply provisions but no separate brassiere provision. CBP's instructions to the ports dated September 14, 2001 (TBT-00-023-01) state that the AGOA short supply provisions do not apply to brassieres. This instruction seems to contradict CBP's logic that the presence of the separate CBTPA brassiere provision confirms Congressional intent that the § 10.223(a)(7) short supply provision does not apply to brassieres of subheading 6212.10, HTSUS. CBP's logic is also called into question by the exclusion of brassieres of subheading 6212.10, HTSUS, only from the § 10.223(a)(7) provision. If the presence of the specific brassiere provision in the CBTPA were construed to exclude brassieres from one CBTPA preference provision, it follows that brassieres should be excluded from the other CBTPA preference provisions (including the § 10.223(a)(8) short supply provision) as well.

CBP's Response: CBP's rationale for clarifying that § 10.223(a)(7) does not include brassieres of subheading 6212.10, HTSUS, is based upon the application of the current “short supply” provisions in Annex 401 of the NAFTA and the methodology necessary to determine fabrics and yarns deemed to be in “short supply” for purposes of NAFTA. In order to qualify for preferential treatment under NAFTA, brassieres need only be cut (or knit to shape) and sewn or otherwise assembled in the territory of one or more of the NAFTA parties. There is no requirement provided for the sourcing of fabrics or yarns used in the production of qualifying brassieres, thus allowing fabrics or yarns to be sourced from anywhere. As it would be nonsensical to view the rule as establishing all fabrics and yarns to be “short supply” for brassieres under NAFTA, CBP interprets the rule as not designating any fabrics or yarns as “short supply” for brassieres. Based on that rationale, the instructions to the ports dated September 14, 2001 (TBT-00-023-01) stating that the AGOA “short supply” provision did not apply to brassieres was appropriate. The reference by CBP in the interim regulations document to § 10.223(a)(6) as support for CBP's view that § 10.223(a)(7) does not include brassieres of subheading 6212.10, HTSUS, was simply, as stated, additional support for the view adopted by CBP. As a result of the amendments to the CBTPA brassiere provision in the Trade Act of 2002, reliance on § 10.223(a)(6) as support for CBP's view would now seem misplaced. However, it was not the basis for that view.

The primary reason that CBP has concluded that the current “short supply” provision of the CBTPA does not include brassieres is based upon the manner in which “short supply” yarns and fabrics are determined under the NAFTA as has already been explained above.

Comment: The fact that the short supply provision of § 213(b)(2)(A)(v)(I) comes directly after the CBTPA brassieres provision suggests that, contrary to CBP's reasoning, Congress intended the short supply provision to apply to brassieres of subheading 6212.10, HTSUS.

CBP's Response: CBP does not believe that the order of the statutory provisions in question is persuasive, and CBP disagrees with the conclusion of the commenter for the reasons set forth earlier in this comment discussion.

Comment: In support of its interpretation regarding this issue, CBP notes that the NAFTA Annex 401 rule for subheading 6212.10, HTSUS, includes no designation of fabrics or yarns in short supply. This is a misreading of the application of Annex 401 to the CBTPA short supply provision. Congress was using the Annex 401 language as the easiest way of capturing those fabrics and yarns that are already designated as short supply under NAFTA, and not as a re-creation of the basic rule of origin under NAFTA.

CBP's Response: Annex 401 of the NAFTA does not contain a convenient list of “short supply” fabrics and yarns. Additionally, for certain apparel, annex 401 specifies distinct fabrics by technical descriptions. The only means by which CBP is able to determine the “short supply” fabrics and yarns currently allowed under the NAFTA and thus allowed under the CBTPA is by reviewing the specific rules contained in annex 401.

Declaration of Compliance

Comment: One commenter recommends that § 10.228(c)(1) provide that the declaration of compliance be submitted to CBP no later than 30 days prior to the beginning of the next year (October 1st) to afford CBP sufficient time to evaluate the declaration, assign a distinct and unique identifier, and notify the ports of the identifier. The 10-day time frame currently specified in this regulation is unrealistic.

CBP's Response: CBP does not agree that it is necessary to make any change in the specified time frame for filing the Declaration of Compliance. CBP notes that the requirement is for submission at least 10 calendar days prior to the date of the first shipment. The reference to the first shipment was intended to accommodate goods shipped after a year has already begun, and the change suggested by this commenter would remove this flexibility. CBP is still of the opinion that the 10-day period is the appropriate minimum period needed for processing the Declaration of Compliance and giving notice of the distinct and unique identifier to the producer or entity controlling production and to the importer. However, CBP would not object to submissions made well in advance of that 10-day period. It is noted that the regulatory text merely sets forth a minimum period and therefore does not preclude earlier submissions.

Comment: Four commenters disagree with the general rule set forth in § 10.228(b)(2)(i)(G), providing that a declaration of compliance prepared by a producer or by an entity must cover all production of that producer or all production that the entity controls. The commenters allege that requiring a declaration to cover all of a producer's production presents confidentiality problems in situations such as presented in Example 6 under § 10.228(b)(2)(ii) where an entity controls a portion of a producer's production but the producer also operates independently by producing for several U.S. importers. The commenters maintain that the entity may be reluctant or may even refuse to provide the producer with the fabric cost and value information needed for the producer to file its declaration of compliance. According to these commenters, the statute does not require that production be reported twice, as it would be in this example. The commenters suggest that the regulations should provide some method through which confidentiality for cost information can be maintained by the producer or entity that has this information but still allow each party to file a declaration based only on that part of the information for which it is directly responsible.

CBP's Response: In the case of the producer, the Declaration of Compliance must include all the production of the producer that meets the description of 19 CFR 10.223(a)(6) and is entered in the United States. In the case of an entity controlling production, the Declaration of Compliance must include all the production that meets the description of § 10.223(a)(6) and is entered in the United States. These requirements reflect the wording of the statute as regards who must bear the burden of meeting the 75 or 85 percent standard. The regulatory provisions are intended to encompass all possible production scenarios that could arise under the statutory framework and therefore include circumstances in which there is an overlap as regards information reported by an entity and information reported by a producer. Since the suggestion of these commenters would lead to a result that is incompatible with the wording of the statute, it cannot be adopted.

With regard to the issue of confidentiality, CBP recognizes that there may be legitimate commercial concerns regarding the information that must be disclosed between producers and entities controlling production in order to demonstrate compliance with the statutory requirements. However, CBP believes that confidentiality issues in this context are a private commercial matter which must be addressed by the private parties directly affected, as part of the process of weighing the advantages and disadvantages of participating in this statutory preferential tariff program. CBP further believes that it would be inadvisable to address those concerns in the manner suggested by these commenters because it would result in a reporting requirement that would not allow CBP to effectively verify compliance with the statutory requirements.

Certificate of Origin

Comment: Four commenters argue that a Certificate of Origin under § 10.224 should not be required for brassieres entered duty-free under subheading 9820.11.15, HTSUS. The commenters state that, because CBTPA eligibility for brassieres is dictated only by the validity of the information on the Declaration of Compliance, a Certificate of Origin should be unnecessary when the declaration identifier number is on the entry.

CBP's Response: Paragraph (b)(4)(A)(i) of amended section 213 provides that “[a]ny importer that claims preferential treatment under paragraph (2) or (3) shall comply with customs procedures similar in all material respects to the requirements of Article 502(1) of the NAFTA * * *.” Article 502(1)(a) of the NAFTA obligates each NAFTA Party to require an importer that claims preferential tariff treatment to make a written declaration based on a valid Certificate of Origin. Paragraph (b)(4)(A)(ii) of amended section 213 sets forth certain conditions that must be met in order for a CBTPA beneficiary country's merchandise “to qualify for the preferential treatment under paragraph (2) or (3) and for a Certificate of Origin to be valid with respect to any article for which such treatment is claimed.” CBP interprets the references in paragraph (b)(4)(A)(i) to NAFTA Article 502(10) and in paragraph (b)(4)(A)(ii) to a Certificate of Origin to mean that Congress intended to require Certificates of Origin for claims of CBTPA preferential treatment, including for brassieres. The commenters seem to be suggesting that, for brassieres alone, the declaration of compliance should replace the Certificate of Origin.

Furthermore, as a practical matter, the Declaration of Compliance cannot effectively replace the CBTPA Textile Certificate of Origin provided for under § 10.224 because the latter document contains information elements that are not set forth on, or that are useful in verifying information provided on, the Declaration of Compliance.

Recordkeeping and Verification Requirements

Comment: Five commenters allege that the recordkeeping and verification requirements set forth in § 10.228(d) are too onerous, do not conform to the way most companies maintain their records and are not authorized by the CBTPA. The commenters contend that a company should not have to create new accounting records to satisfy this regulatory provision; they note in this regard that many companies do not keep cash disbursement, purchase journals or record the date of production. According to these commenters, so long as the producer or the entity is able to establish that the 75 or 85 percent standard is met in any given year using generally accepted accounting principles, the statutory requirement should be satisfied.

CBP's Response: With regard to the assertion that the § 10.228(d) recordkeeping requirements (such as the cash disbursement or purchase journal) do not conform to the way most companies keep their records, CBP notes that the regulatory text does not mandate the maintenance of specific types of records. Rather, the regulatory text states in this regard that the audit trail documents must consist of a cash disbursement or purchase journal “or equivalent records” to establish the purchase of the fabric or component. Therefore, if a company does not maintain a cash disbursement or purchase journal, alternative records that reflect the purchase of the fabric or component would be acceptable.

The recordkeeping and verification requirements were included in § 10.228 so that the trade community would know what CBP would expect to see when verifying a claim for preferential treatment of brassieres under the CBTPA. These requirements are implicitly authorized by the CBTPA because they are directed to the specific statutory standards that apply in the case of brassieres under the CBTPA and because they are promulgated by the government agency that is charged with responsibility for enforcing those statutory standards. The basic point to remember is that CBP must be able to verify that the requirements of the statute have been met, even if this means that a producer must create certain records that were not maintained prior to the CBTPA (such as records regarding the date of production, which are germane to the year-to-year standard established by the statute). There would be no objection to the use of generally accepted accounting principles (GAAP) to establish that the 75 or 85 percent standard is met, provided that the use of GAAP yields a result that is verifiable and that accurately reflects the applicable CBTPA statutory standards.

Finally, as regards the complaint that the recordkeeping and verification requirements are too onerous, CBP would simply note that a decision whether to enter into transactions under a duty-preference program may require the consideration of a variety of factors, including whether the benefits outweigh the business costs that must be incurred in order to comply with the requirements of the program.

Comments in Response to T.D. 03-29

One comment was received in response to the notice of solicitation of comments on the interim regulations implementing the Preferential Treatment of Brassieres Under the Caribbean Basin Economic Recovery Act (68 FR 56166) which appeared in the Federal Register on September 30, 2003. The comment addressed two concerns with regard to the implementing regulations.

Comment: The first concern expressed by the commenter is with regard to the clarity of the regulations as to the entry requirement for brassieres entered into the United States in a prior year which are considered in the calculation to determine whether the U.S. fabric content requirement set forth by Congress has been met in order for imported brassieres to qualify for preferential treatment in a subsequent year. The commenter is concerned that the language of the regulations as drafted suggests that brassieres considered in the fabric content calculation must be produced in the same year in which they are entered. The regulations contain examples of the application of the provisions set forth in the regulations and the commenter acknowledges that Example 6, which illustrates that brassieres may be produced in one year and entered in a different year, is consistent with changes in the brassiere provision enacted by Congress in the Trade Act of 2002. However, the commenter seeks further clarification and suggests the addition of the phrase “without regard to the year in which the articles were produced” after the phrase “within the same year” in § 10.228(b)(2)(i)(A).

CBP's Response: CBP disagrees with the need for further clarification as suggested by the commenter. The language at issue in § 10.228(b)(2)(i)(A) clearly addresses the manner of production of the brassieres in question and then specifies that the brassieres must all be entered in the same year. Example 6 serves to further clarify that the production of the brassieres under consideration need not occur in the same year as the entry of the brassieres. However, all brassieres considered in determining whether brassieres in a subsequent year will qualify for preferential treatment must be entered in the same program year.

Comment: The commenter's second concern is that the regulations need to be clarified as to the relationship between § 10.223(a)(6), the provision specific to brassieres, and other provisions of the CBTPA. Specifically, the commenter requests that CBP clarify the regulations to provide that brassieres entered under 19 U.S.C. 2703(b)(2)(A)(i), (ii), (iii), (v), or (vi), which are described in § 10.223(a)(1), (2), (3), (4), (7), (8) or (9) of the CBP Regulations, are not to be considered in the fabric content calculation to determine the eligibility of brassieres for preferential treatment in a subsequent year. The commenter suggests as an example that brassieres may be entered under the provision for apparel made of regionally produced knit fabric, § 10.223(a)(4), or under either short supply provision, § 10.223(a)(7) or § 10.223(a)(8), and brassieres so entered would not be considered in calculating the fabric content to determine if the requisite percentage of U.S. fabric had been used to allow for subsequent year preferential treatment.

CBP's Response: CBP disagrees with the commenter. First, CBP cannot agree with the commenter that brassieres entered under other provisions of the CBTPA will not be considered for determining eligibility for preferential treatment under § 10.223(a)(6). CBP agrees with this assertion of the commenter only to the extent that it applies to determining whether the 75 percent threshold U.S. fabric content requirement has been met. With regard to cases when the 75 percent requirement has not been met and a producer or entity controlling production must meet the stricter 85 percent U.S. fabric content requirement, or in the case of a new producer or entity controlling production which did not enter brassieres in the first year of the program and must therefore meet the stricter 85 percent U.S. fabric content requirement, if CBP does not consider brassieres entered under other provisions of the CBTPA, that is, provisions other than § 10.223(a)(6), a producer or entity controlling production would never be able to meet the 85 percent U.S. fabric content requirement.

Secondly, CBP rejects the commenter's suggestion that brassieres currently may be entered under all of the provisions associated with the statutory paragraphs identified in 19 U.S.C. 2703(b)(2)(A)(i), (ii), (iii), (v), or (vi). Section 10.223(a)(9) of the CBP Regulations is associated with 19 U.S.C. 2703(b)(2)(A)(vi) and provides for handloomed, hand-made and folklore articles. At this time, this provision does not include brassieres as eligible for entry under that provision. Therefore, brassieres may not be entered under § 10.223(a)(9). Likewise, § 10.223(a)(7) and (8), the provisions which allow for apparel articles produced from fabrics or yarns determined to be in short supply, do not currently include brassieres as eligible for entry under those provisions.

Additional Change to the Regulations

While CBP has not adopted any changes identified and discussed above in connection with the public comments, CBP has amended blocks 4-6 of the declaration of compliance for brassieres by adding exclusion language regarding findings and trimmings after each reference to fabric(s) as provided for in section 3107(a) of the Act. Additionally, wherever the term “Customs” appears in the CBP Regulations affected by this final rule (i.e. 19 CFR 10.228), it is replaced with the term “CBP.”

Conclusion

After analysis of the comments and further review and consideration of the matter, CBP is adopting as a final rule the interim rule set forth in T.D. 01-74 amending § 10.222, paragraph (a)(7) of § 10.223, and the Appendix to Part 163 of the CBP Regulations which was published in the Federal Register at 66 FR 50534 on October 4, 2001. CBP is also adopting as a final rule, with the changes discussed above, the interim rule set forth in T.D. 03-29 amending § 10.228 of Part 10 of the CBP Regulations which was published in the Federal Register at 68 FR 56166 on September 30, 2003.

It is noted that while T.D. 01-74 amended § 10.223(a)(6), T.D. 03-12 published in the Federal Register at 68 FR 59649 on March 21, 2003, set forth additional changes to § 10.223(a)(6). Therefore, as the changes to § 10.223(a)(6) set forth in T.D. 01-74 were further amended, those changes will be finalized in a separate final rule document that addresses the other statutory changes to the CBERA made by the Act.

Executive Order 12866

This document does not meet the criteria for a “significant regulatory action” as specified in E.O. 12866. This rule is limited in scope and affects only a small segment of the trade community. Moreover, it sets forth the technical requirements for a statutorily mandated trade benefits program.

Regulatory Flexibility Act

As set forth in the preamble, the regulations to implement the standards for preferential treatment for brassieres imported from Caribbean Basin countries were previously published as interim regulations. Those interim regulations provided trade benefits to the importing public, implemented direct statutory mandates, and were necessary to carry out the preferential treatment and United States tariff changes proclaimed by the President under the Caribbean Basin Economic Recovery Act. Pursuant to the provisions of 5 U.S.C. 553(b)(B), CBP issued the regulations as interim rules because it had determined that prior public notice and comment procedures on these regulations were unnecessary and contrary to the public interest. For these reasons, pursuant to the provisions of 5 U.S.C. 553(d)(1) and (3), CBP also found that there was good cause for dispensing with a delayed effective date. Because no notice of proposed rulemaking was required, the provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) do not apply. Accordingly, this final rule is not subject to the regulatory analysis or other requirements of 5 U.S.C. 603 and 604.

Paperwork Reduction Act

The collection of information contained in this interim rule has previously been reviewed and approved by the Office of Management and Budget (OMB) in accordance with the requirements of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.) under OMB control number 1651-0083.

An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless the collection of information displays a valid control number.

Signing Authority

This regulation is being issued in accordance with 19 CFR 0.1(a)(1).

List of Subjects

19 CFR Part 10

• Assembly
• Bonds
• Caribbean Basin Initiative
• Customs duties and inspection
• Exports
• Imports
• Preference programs
• Reporting and recordkeeping requirements
• Trade agreements

19 CFR Part 163

• Administrative practice and procedure
• Customs duties and inspection
• Imports
• Reporting and recordkeeping requirements

Amendments to the Regulations

For the reasons stated in the preamble, Part 10 and Part 163 (19 CFR Part 10 and 19 CFR Part 163) are amended to read as follows:

PART 10—ARTICLES CONDITIONALLY FREE, SUBJECT TO A REDUCED RATE, ETC.

1. The authority citation for Part 10 continues to read in part as follows:

Authority: 19 U.S.C. 66, 1202 (General Note 23, Harmonized Tariff Schedule of the United States (HTSUS)), 1321, 1481, 1484, 1498, 1508, 1623, 1624, 3314;

Sections 10.221 through 10.228 and §§ 10.231 through 10.237 also issued under 19 U.S.C. 2701 et seq.

2. The introductory text in § 10.222 is republished to read as follows:

3. In § 10.223, paragraph (a)(7) is republished to read as follows:

4. Section 10.228 is revised to read as follows:

PART 163—RECORDKEEPING

5. The authority citation for Part 163 continues to read as follows:

Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1484, 1508, 1509, 1510, 1624.

6. In the Appendix to Part 163 the listing under section IV of “§ 10.228 CBTPA Declaration of Compliance for brassieres” is republished.