By: Alan R. Klestadt (aklestadt@gdlsk.com)
Arthur W. Bodek (abodek@gdlsk.com)

The recently concluded U.S. – China textile agreement provides that certain knit-to-shape garments classifiable within quota categories 338/339 and 638/639 are exempt from quota. The quota exempt items are described as follows:

Knit to shape on flat-bed knitting machines, having a stitch count exceeding 9 stitches per 2 centimeters, but less than or equal to 18 stitches per 2 centimeters, measured on the outer surface of the fabric, in the direction in which the stitches are formed. All of the components of the garment are knit-to-shape and all are looped and linked, including side seam and pocket (if any).

The scope of this quota exemption has been further refined by the following new tariff note that will reportedly appear in the 2006 tariff schedule:

For the purposes of heading 6110, the term "knit to shape" means garments knit to shape on flat-knitting machines, having a stitch count exceeding 9 stitches per 2 centimeters, but less than or equal to 18 stitches per 2 centimeters, measured on the outer surfaces of the fabric, in the direction in which the stitches are formed. All of the garment's components, which include, but are not limited to collars, plackets, cuffs, waistband and pockets, are knit to shape. Components are considered knit to shape if they come off the knitting machine in exactly the form used in the garment, without further cutting or trimming. All of the components are assembled by looping and linking, including the side seams.

The above language strongly signals that this quota exemption will be narrowly implemented. A garment will need to meet each and every element of the above note in order to qualify. Among the issues to which importers should pay particular attention are the following:

1. Tariff classification – only garments falling within specified new subheadings in Heading 6110, HTS, will be eligible for consideration. Therefore, garments classifiable elsewhere (e.g., tank-tops and similar garments of Heading 6109, other tops of Heading 6114) would remain subject to 338/339 and 638/639 quota even if meeting the above definition.


2. Knit to shape "components" – All components need to be knit to shape. This is a departure from the origin regulations which require only that 50% of the exterior surface area be comprised of knit to shape components. Moreover, Customs will require that previously ignored minor components such as collars, plackets, cuffs, waistband and pockets must be knit to shape. Common sense dictates that some flexibility must be applied with respect to components that simply cannot be knitted to shape (e.g., buttons, zippers, labels, etc.). However, any exceptions will have to be considered on a case-by-case basis.


3. "Knit to Shape" – In another departure from prior practice, the new standard for purposes of the quota exemption requires that components come off the knitting machine in exactly the form used in the garment (e.g., panels that require cutting or trimming along knitted-in lines of demarcation will not suffice). A possible exception may apply where components are knitted directly to shape with finished edges but the knitting machine inserts several rows of waste yarns along the edge (e.g., to provide the linking worker with a "handle" to grip the component or to hold together a roll of fully-formed components). Any such scenario (in which the waste yarns are simply pulled away from the component with no cutting or trimming required) would be addressed by Customs on a case-by-case basis.


4. Knit vs. Crochet – The legal standard requires that all of the components be knit to shape. While still an open issue at this time, this standard may very well be construed to disqualify garments with any crocheted components (e.g., sleeves, necklines, etc.).


5. Stitch Count – While Customs does not expect any significant change of practice in this area, it must be borne in mind that it is the actual stitch count that will govern. The fact that a component was knitted on a particular gauge machine will not be determinative. Moreover, the stitch count requirement must be satisfied with respect to the exterior of the garment ¹ and in the direction in which the stitches are formed.


6. Flat Knitting Machines – The expectation is that this requirement will be used to exclude goods produced on circular knitting machines (as well as handknits).


7. All of the Components Looped and Linked – The current expectation is that Customs will require that each intersection of knit to shape components be looped and linked. Thus, for example, Customs would likely reject a scenario in which panels are looped and linked at the side seam but otherwise stitched together at the shoulders. "Minor" components such as pockets, collars, cuffs, etc. must also be linked and looped.


8. Other Types of Stitching – When used as a means of joinder, Customs is expected to reject stitching other than looping and linking. This could be significant in the case of V-neck garments where the neckband is often folded over and stitched at the point of the V. However, when used as a means of reinforcing an already looped and linked seam, other means of stitching (e.g., overlock) might be accepted. Like all other aspects of the quota exemption, this issue would have to be clarified by Customs.

As can be seen by the above discussion, the quota exemption within categories 338/339 and 638/639 is a very narrow one. We anticipate that there will be many instances in which importers claiming eligibility for the quota exemption will be denied such treatment either because of a failure to adhere to each and every element of the required standard or because of interpretive issues that may arise.

The observations made above are largely based on our informal conversations with Customs officials closely involved with the issue. As they may not reflect what will ultimately become Customs' final position, importers are urged to obtain binding rulings to clarify the scope of the quota exemption.

Please feel free to contact our office with any questions.

FOOTNOTES

1. According to Customs, rib knit fabrics will continue to be counted in the same manner as before on the theory that each surface has both knit and purl stitches (as distinguished from true "double knit" fabrics which may have a different number of stitches on each surface).