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New HTSUS Footwear Provisions Effective Dec. 5; Cotton, Chile FTA Changes Made Also

Monday, November 07, 2011
Sandler, Travis & Rosenberg Trade Report

President Obama issued Oct. 31 proclamation 8742 making a number of changes to the Harmonized Tariff Schedule of the U.S. This proclamation includes long-awaited changes that will alter the classification of but preserve the preferable duty treatment afforded to certain footwear with an outer sole of rubber or plastic with textile material applied to it that constitutes the predominant material of the outer sole. The proclamation does not include the 2012 amendments to the HTSUS, which are expected to be published later this month and take effect on or about Jan. 1, 2012.

Footwear. Effective Dec. 5, the proclamation will add the new legal note to HTSUS Chapter 64 and all of the new tariff provisions to headings 6402 and 6404 that had been recommended by the International Trade Commission last year following a classification decision issued by the World Customs Organization’s Harmonized System Committee. The HSC decision was contrary to U.S. Customs and Border Protection rulings classifying footwear with an outer sole of rubber or plastic to which textile material has been applied as having a textile outer sole in heading 6405, with duty rates ranging from 7.5% to 12.5%.

The implementation of the HSC decision in the U.S. would have resulted in a substantial duty increase on this footwear to as high as 90 cents/pair + 37.5%. However, the so-called 1205 process utilized by the ITC in considering how to implement the decision seeks to preserve existing duty rates for goods reclassified as a result of legal amendments to the HTSUS. As a result, the new tariff lines established by the proclamation in headings 6402 and 6404 affirm the now-common use of applying textile material to the outer sole and carry the same duty rates for footwear that can no longer be classified in heading 6405and will be reclassified into these headings.

On the other hand, the proclaimed changes are not as expansive as the footwear industry would have liked. There are also concerns about how CBP will apply the new legal note, which limits the scope of heading 6405 with language that is subject to interpretation. The American Apparel and Footwear Association opined in a June 2011 memo that going forward CBP “will likely no longer allow the use of textile outsoles to lower duty rates for any footwear under HTS Heading 6401 nor for many types of footwear classified under HTS Headings 6402 and 6404.”

Chile FTA. The proclamation also modifies the HTSUS to reflect an agreement with Chile to modify certain rules of origin and add others under the U.S.-Chile Free Trade Agreement. This change will be effective for goods of Chile entered or withdrawn from warehouse for consumption on or after Nov. 1, 2011.

Cotton. Finally, the president is updating U.S. Note 6 to subchapter III of HTSUS Chapter 99 to reflect changes in the conditions under which a special import quota for upland cotton takes effect. This change is effective with respect to goods entered or withdrawn from warehouse for consumption on or after June 18, 2008.

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