Monday, August 18, 2014

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GRK Canada: Wood Screws, Fly Swatters, and Butter Knives

Is it possible that I failed to report on the Court of International Trade decision in GRK Canada, Ltd. v. United States? I can't find it on my own blog, so that seems to be true. Well, the Federal Circuit has vacated and remanded that decision back to the CIT, so pretend it never happened and start here.

The issue is the proper tariff classification of various screws. Customs and Border Protection liquidated the the screws as "other wood screws" in HTSUS item 7318.12.00. GRK protested, asserting that the correct classification in in 7318.14.10 as "self-tapping screws." The Court of International Trade held that both subheadings were eo nomine, meaning that the scope of the heading depends on the description of the product by name rather than by use. Because the government's argument in the Trade Court was based on the use of the screws in wood, the Court found it to be weak and ultimately unconvincing. The Court then found that the imported products had physical characteristics of both wood screws and self-tapping screws. Because the competing subheadings were equally specific, the CIT applied GRI 3(c) and classified the screws as self-tapping, which is the last subheading in numerical order.

The Federal Circuit disagreed with the Court of International Trade in a very fundamental way. According to the majority opinion, an eo nomine designation may inherently suggest a type of use. For example, the eo nomine term "fly swatter" implies that the item is used for the swatting of flies. Under the the Federal Circuit's analysis, it would be incorrect for the Court of International to ignore this implication when classifying fly swatters and similar articles.

In fact, how could it be otherwise? What are the physical characteristics of a fly swatter that define it as such? They tend to have long handles and heads consisting of some kind of mesh or light solid surface. That might also describe a squash racket and a spatula. Other characteristics that distinguish the fly swatter might include the value and materials. But, the real distinction is that the product is designed for swatting flies, which makes the use and probably the marketing relevant.

With this in mind, the Federal Circuit held that "other wood screws" "seems naturally aligned with the indented use of screws," meaning that they are screws used to fasten wood. Further, the Explanatory Notes indicate that wood screws and self-tapping screws are similar but that self-tapping screws are intended to cut into metal and slate. The Court of International Trade recognized this when it stated that self-tapping screws as made of hardened materials. But, the Federal Circuit found this distinction to be trivial and insufficient to differentiate the products. According to the Federal Circuit, "The use of goods may be an important aspect of the distinction of certain eo nomine provisions, in particular, where, as here, the name of the provisions refers directly to the use of subject articles."

As a result, the Federal Circuit vacated the decision of the Court of International Trade and sent it back for reconsideration.

All of which would have been interesting enough. But, there's more. There is a dissenting opinion from Judge Reyna, who was a trade lawyer before he became judge. Judge Reyna says that once the Court determined that the two subheadings at issue are eo nomine provisions, it was improper to "import a principal use analysis into its construction of the eo nomine subheadings." So much for my fly swatter.

Also, Judge Reyna correctly points out that the CIT applied the legally binding General Rules of Interpretation to their logical conclusion at GRI 3(c). Rather than fault the CIT for that analysis, the Federal Circuit should recognize that resolving this kind of classification conundrum is exactly why GRI 3(c) exists.

Judge Reyna makes a strong case. He wants to focus on lexicographical evidence of the common and commercial meaning of the terms "other wood screws" and "self-tapping screws." Reviewing that evidence, he would find that the industry, and presumably the rest of English-speaking America, differentiate these screws based on the physical characteristics of the screws, which is what the CIT did. He would have affirmed the CIT.

This is a tough case. I think it turns on two important questions. The first question discussed by the Federal Circuit is whether the phrase "other wood screw" is an eo nomine designation that inherently suggests a limitation based on use. That is my fly swatter analogy. If so, does the law then require the Court of International Trade should consider use in determining the classification? That consideration raises the second question: is this really an eo nomine classification? Is "wood screw" meaningfully different than "screw for use in wood?" The latter would be a use provision and all of this goes away because we no longer have a competing eo nomine provisions. I'm not suggesting that is the right answer. For example, a butter knife, has all kinds of common uses other than cutting and spreading butter. There are physical characteristics that define a butter knife including a rounded tip and relatively dull cutting surface. All I am suggesting is that this is an interesting case and is exactly the kind of issue customs lawyers love to sort out.

Friday, August 15, 2014

Ruling of the Week 4: Gelato

I need to give you a post on GRK Canada v. United States, which is a recent decision of the Court of Appeals for the Federal Circuit on the classification of screws. It is interesting and deserves attention. You'll have to wait a bit.

In the meantime, enjoy some dessert, specifically a product called "Le Crème Pregiate - Ricotta con pezzi di pera e gocce di cioccolato." According to Customs and Border Protection, this delicious sounding stuff is gelato containing milk, sheep-milk ricotta, semi-candied pear pieces, chocolate chips, and a bunch of other stuff. As with many rulings issued from CBP in New York, there is no analysis provided in N255285 (Aug. 6, 2014). The end result is that it is classifiable in HTSUS subheading 2105.00. The specific tariff item will depend on whether the goods are imported in or out of the milk quota, which is why this caught my attention. That result is similar to the unbaked cinnamon rolls we discussed last week.

See a theme here? That's right, I am hungry. Also, one of my few hidden talents is that I make pretty awesome ice cream. I'm going to have to work on ricotta and pear, that sounds good to me.

Saturday, August 09, 2014

Ruling of the Week 3: Mmmm Cinnamon Rolls

The New York Times occasionally profiles a business traveler. One of the questions the paper asks is whether the traveler has any secret airport vices. It surprises me that more of the profile subjects do not say cinnamon buns. Very few things on Earth smell better than airport cinnamon buns. But, I will admit, I do not think I have ever actually eaten one. They seem to me to be sized for a family of six. That is not intended to sound virtuous. I am not opposed to the airport beer or the airport milkshake. On rare occasions, I will indulge in the airport McFlurry. But, I find the cinnamon roll to be altogether too daunting a challenge.

Which brings me to the ruling of the week: HQ H158455, which is still proposed. 

The importer had requested a ruling on the tariff classification of unbaked cinnamon rolls imported for retail establishments to proof and bake. Originally, CBP classified them as food preparations of flour in HTSUS item 1901.90.90. Apparently, the importer was not happy with that result and asked CBP to reconsider the ruling. In that request, the importer provided additional information including details of the dry weight of the various ingredients. It may not surprise you to learn that more than 10% of that dry weight was white sugar derived from cane or beet.

Do you know what that means? It is not necessarily a good thing for the importer.

It means that the unbaked cinnamon rolls are classified in HTSUS item 1901.90.56 as products containing 10% or more sugar. That puts the products under the sugar quota system. If the goods are not from Mexico and the quota limit is filled, the duty on the merchandise is going to go from 10% ad valorem to 23.7 cents per kilo plus 8.5%, which I assume is more than 10%.


Is there a lesson here? For purposes of learning about tariff classification, this is a straight up GRI 1 analysis. The only fact that changed and resulted in the revocation was that Customs got better information from the importer about the product. From a strategy perspective, keep in mind that the facts you present may have apparently unintended consequences.

Sunday, August 03, 2014

Trouble, With a Capital T&E

You should remember from the prior post on this case that the Court of International Trade held C.H. Robinson liable for duties on imported clothing from China that entered the U.S. bonded for transportation and exportation (“T&E”), but were never exported. That is a violation of the bond. C.H. Robinson was the bonded carrier responsible for delivering the merchandise to Laredo, but another carrier was going to accomplish the actual exportation to Mexico. It appears the goods made it to Laredo, but it is not clear what happened after that.

When U.S. Customs and Border Protection audited the T&E, C.H. Robinson produced the stamped Mexican pedimento entry documents as proof of the export. Unfortunately, Mexican Customs subsequently declared the pedimentos to be false. As a result, Customs hit C.H. Robinson with liquidated damages of $75,000, which it mitigated to about $57,000. Customs then went to court to collect that amount plus duties, taxes, and fees. The total amount was in excess of $100,000. The Court of International Trade found C.H. Robinson breached the bond and is, therefore, liable. This appeal resulted.

As background, keep in mind that when goods are moved via T&E, the bonded carrier may be liable for any shortages, failures to deliver, or irregular delivery. 19 CFR 18.8(a). In addition, the regulation allows Customs to collect duties, taxes, and fees related to “missing merchandise” from the bonded carrier. On appeal, C.H. Robinson’s point was that the goods are not “missing” because it made it to Laredo, the intended port of exportation.

But, that did not convince the Court of Appeals. While C.H. Robinson did show documents indicating delivery to Laredo, those documents were not conclusive proof of delivery. Customs can ask for additional evidence such as bills of lading or delivery receipts, which C.H. Robinson did not produce. Further, evidence that the merchandise was not exported (i.e., the false pedimentos) leads to the possibility that the goods remain somewhere in the U.S. If that’s true, the goods are “missing.”

Remember, C.H. Robinson was not supposed to export the goods. Its job was done when it delivered the clothing to Laredo, where another carrier was going to accomplish the exportation. On appeal, C.H. Robinson argued that it was not obligated to produce evidence of exportation because it was not responsible for exporting the goods. Neither the Court of International Trade nor the Court of Appeals for the Federal Circuit accepted that argument. The problem for C.H. Robinson is that it was the bonded carrier and once the goods went missing, there was a breach of the bond. According to the courts, that makes C.H. Robinson responsible.


Since no one could find the goods and there was no proof of exportation, the Court of Appeals affirmed the CIT’s determination that the government had proven by a preponderance of the evidence that the goods are missing. That was enough and C.H. Robinson remains on the hook.

Saturday, August 02, 2014

Ruling of the Week 2: Flashing Jewel Sticker

In HQ H236025, which is technically still a proposed ruling, Customs and Border Protection will change the tariff classification of a star-shaped green plastic jewel. The jewel includes a battery and an light. When pressed, it flashes. And, to make it really useful at your next rave, the jewel is adhesive and can be worn anywhere on the body.

Anyone want to guess its tariff classification?

CBP's analysis is mostly about what this thing is not. It is not imitation jewelry because it does not imitate the small articles of person adornment of precious metal or of metal clad with precious metal. In other words, this thing is not trying to look like earrings or a brooch for example and, therefore, won't be classified as imitation jewelry.

Next question is whether it is a portable electric lamp. I guess it is possible that kids at Lollapalooza might get close enough in the dark to read by the light of their green jewel stickers. But, CBP noted that the light flashes and does not provide much illumination. Because the purpose of this gizmo is to adorn the body rather than provide light, Customs excluded it from classification as a portable electric lamp.

That leaves Heading 3926, the final resting place of many plastic tchotchkes. Heading 3926 covers "other articles of plastic" and 3926.90.40 covers imitation gemstones.

To me, that raises an interesting question. Customs excluded this item from imitation jewelry because it did not imitate traditional jewelry. Last time I looked, no natural gemstones flash to the beat of The So So Glos, which seems to say it is also not trying to imitate a gemstone. Maybe somewhere else in 3926 would be more appropriate.

Friday, July 25, 2014

Ruling of the Week: The Minkomatic

Maybe this will be a continuing feature, maybe not. Either way, it is not at all unusual for me to see rulings that I find amusing for one reason or another. And, in almost all cases, I know that it is not amusing to the people involved who consider the product involved to be their job. So, I issue a blanket apology to anyone I might offend.

Today, I was amused to see a ruling on the Minkomatic 660 and 670 feeder trucks. You can find out everything you ever wanted to know about self-propelled vehicles designed to deliver feed to livestock in pens here.


The issue presented to Customs and Border Protection was whether the Minkomatic truck is classifiable as a vehicle of Chapter 87 or as agricultural machinery of Chapter 84. Because it is equally equipped for mink feeding, Customs determined that it is not principally used for transport. That took it out of Chapter 87. Customs then also determined that mink husbandry is an agricultural exercise. That puts the Minkomatic is 8436, without leaving GRI 1.

Why is that amusing? "Minkomatic," that's why.

Tuesday, July 15, 2014

What's a Protest?

A protest is a very important document. When an importer lodges a protest with Customs and Border Protection, the importer is telling CBP that it disagrees with a decision Customs made when liquidating an entry. Absent a protest, the liquidation becomes final and is not subject to challenge. If the importer files a protest and CBP denied it, the importer can go to the Court of International Trade to challenge the denial. In many cases, if there is no valid protest, there is no way to get into court.

To be valid, a protest has to be timely. Today, that means 180 days from the date of liquidation. That was not always the case. The protest period used to be 90 days. The transition from 90 to 180 days was not smooth and that seems to be the underlying problem in Puerto Rico Towing & Barge Co. v. United States, a recent decision of the Court of International Trade.

The case involves an effort to protest the collection of duties on ship repairs performed on a U.S. flag vessel while it was in the Dominican Republic. The value of the repairs is subject to a duty of 50% , but can be reduced by the value added from beneficiary developing countries under the Caribbean Basin Economic Recovery Act.

In this case, the importer was apparently working with CBP personnel at the relevant port to prove up the amount of the CBERA offset. Customs denied the claim and the importer sent at least two letters in which it requested relief. One of those letters said it was trying to avoid filing a detailed protest within the 180 day limit.

It turns out that this entry was subject to the old 90-day protest period because it was made prior to December 18, 2004. So, the eventual protest was late.

That raises the question of whether the letters, which were within the 90-day period might be construed to be protests. On this, the Court of International Trade has traditionally been pretty generous. Many cases have said that any correspondence that informs the Port Director of the challenged decision is sufficient to constitute a protest. But, that is not always the case.

The Court will not find a protest simply because it can surmise from all of the surrounding circumstances that the importer intended to protest a liquidation. Further, there are detailed regulations specifying the content of a protest. While the Court did not expressly hang its proverbial judicial hat on the regulation, it is clear that the regulation must have some impact on judging whether a correspondence counts as a protest.

More important, in this particular case, the correspondence indicated that the importer working with Customs to avoid filing a protest. Taken literally, that means neither of the letters was intended as a protest. This is a logical conclusion. But, there is another hand in play: Customs knew the importer disagreed with the assessment and on what grounds. In prior years, that might have been enough to get into Court. But, that was not the case here.

Take that result as a learning moment. To co-opt a common aphorism in Chicago, "Protest early and often." And, when you do protest, use the official form or electronic equivalent. It will make your life easier. Remember that the 180-day period applies to current entries and cannot be extended. On the 181st day, you are stuck with the liquidation.