TEXTILES.ORG
Every five years, the World Customs Organization (WCO) updates the International Harmonized System (HS) used to classify imported and exported goods. Effective January 1, 2022, a change was made to the interpretation of textile materials considered to be impregnated, coated, covered or laminated with plastics. This can impact rates of duty, not only for the textiles, themselves, but also for goods made out of those textiles, as well as eligibility for trade preferences, whether those goods are considered to be in the scope of enforcement actions such as antidumping orders, and a host of trade issues that tend to derive from how products are classified under the Harmonized System.
The WCO has 186 members, covering more than 98 percent of world trade. WCO changes can reflect changes in technology; in countries’ priorities, such as fighting illicit smuggling or environmental hazards; the development of new products; or a host of other reasons. Each revision runs in a five-year cycle, beginning once the WCO Council has approved the edition that has just been completed.
The 2022 edition was approved in June 2019 (for entry into force on January 1, 2022), and the review cycle for the 2027 edition started in the second half of 2019. The last voting meeting of the HS Committee occurred in March 2024, with the final HS 2027 recommendation to the WCO Council scheduled for June 2024.
The WCO system
The slow nature of these changes means that there’s always a lag, but that’s an inevitable result of the consensus-based process at the WCO. The pace also allows WCO member countries sufficient time to determine how to implement the internationally agreed-upon changes in the HS into their tariff schedules. It should be noted that the international system only defines the first six digits (two digits each for the Chapter, the Heading and the Subheading), and some WCO members implement their tariff schedules at that six-digit level. However, the Harmonized Tariff Schedule of the United States (HTSUS) then establishes tariff rates at the eight-digit level, and statistical subheadings at the 10-digit level.
The U.S. International Trade Commission publishes summaries at several stages in this process, including both new eight-digit tariff breakouts, as well as new 10-digit statistical breakouts. Typically, there are many newer 10-digit statistical breakouts than there are new 8-digit tariff lines. Although the U.S. implemented these changes to the HTSUS with an effective date of January 1, 2022, it was only published on January 26, 2022, because of domestic implementation issues.
A legal interpretive headnote was added to Chapter 59 of the HTSUS: Impregnated, Coated, Covered or Laminated Textile Fabrics; Textile Articles of a Kind Suitable for Industrial Use. More specifically, it concerns heading 5903: Textile fabrics impregnated, coated, covered or laminated with plastics, other than those of heading 5902. (Note that heading 5902 is more specialized to cover tire cord fabric.)
Headnotes are critical
To understand any tariff line in the HTSUS, it’s critical to check out the headnotes at the beginning of each chapter. For heading 5903, headnote 2 has provided a longstanding definition of items covered and not covered by the heading. But as of January 1, 2022, a new headnote 3 was inserted (with succeeding headnotes renumbered). This note focuses on a subset of heading 5903 for textile fabrics laminated with plastics.
It reads, “3. For the purposes of heading 5903, ‘textile fabrics laminated with plastics’ means products made by the assembly of one or more layers of fabrics with one or more sheets or film of plastics which are combined by any process that bonds the layers together, whether or not the sheets or film of plastics are visible to the naked eye in the cross-section.”
Previously, the headnotes required that the plastic impregnation, coating or covering on textiles had to be visible to the naked eye for the materials to be classified in heading 5903. Notably this language omitted “laminated” textiles. WCO member countries were therefore left to interpret individually whether or not the requirement for visibility also applied to laminated textiles. The new note indicates that laminated textiles do not need to have a plastic lamination visible to the naked eye to be classified in this heading. Therefore classification of textiles in this heading should now be more consistent internationally.
As a result of this change, companies must now ascertain how a plastic is applied to the underlying textile in order to properly classify it. If it is impregnated, coated or covered, then the plastic must be visible to the naked eye. If it is a plastic film or sheet that is laminated to the textile, then it need not be visible.
Impact on U.S. imports
Different countries will have varying rates of duty and tariff provisions, so the implications of this change would be unique to the importing country. We can use imports into the U.S., as an example. Previously the U.S. interpreted the visibility requirement of headnote 2 to apply to all textiles classified in heading 5903, regardless of how the plastic coating was applied to the textile. Laminated textiles classified in tariff heading 5903 tend to carry lower duty rates than nonlaminated fabrics. That means that in the U.S., removing the visibility requirement for laminated textiles would mean more textiles will now qualify for lower rates.
Further, garments made of these fabrics are uniquely classified in tariff headings 6113 and 6210 at the international level. In the U.S., goods classifiable in these tariff headings tend to carry significantly lower duty rates than other apparel; more garments will now qualify for these lower rates. One example of this difference is a man-made fiber jacket with a duty rate of 27.7 percent; the same jacket if considered laminaed would carry a 7.1 percent duty rate.
In addition, many free trade agreements to which the U.S. is a party, offer a free rate of duty for qualifying apparel. In most cases, qualifying apparel must be made with a significant portion of raw materials also produced within the parties to the agreement. However, these rules frequently offer flexibility to source laminated fabric from anywhere, cut and sew the apparel within the free trade member countries, and qualify for that free rate of duty under a much more flexible rule.
This change could impact trade enforcement actions, including antidumping or circumvention cases, where the scope may be connected to proper tariff classification. It could also impact labeling requirements or safety standards or other trade requirements where such requirements are tied to the tariff classification of the goods.
Since these changes affect all WCO members, firms importing laminated textiles or apparel would benefit from checking whether similar impacts apply to any goods of heading 5903, or made from fabric classified in heading 5903, in those countries. Many countries, including the U.S., have programs under which a company may request a binding classification ruling for greater certainty of the classification of their goods.
Elise Shibles is a partner with Sandler, Travis & Rosenberg P.A., a law firm specializing in international trade law and policy. She heads the Textiles & Apparel and the Forced Labor Practice Groups from the firm’s San Francisco office.