Monday, September 26, 2016

Explanatory Notes Discounted

No, this article is not about where to find a cheap copy of the Explanatory Notes to the Harmonized System. Rather, it is about the Federal Circuit decision in Sigma-Tau Healthscience, Inc. v. United States, in which the Court of Appeals discounted the legal impact of a definition in the Explanatory Notes.

The case is about the classification of two stabilized forms of the chemical carnitine, which may or may not be a vitamin. Carnatine, which is also known as vitamin Bt, is not called out by name in the Tariff Schedule. Customs classified this merchandise as chemical products and preparations of the chemical or allied industries not elsewhere specified in Heading 3824. Sigma-Tau protested and asserted that the correct classification is as vitamins of 2936. Complicating matters, the Court of International Trade held that the merchandise is classifiable in Heading 2923 as "Quaternary ammonium salts and hydroxides; lecithins and other phosphoaminolipids, whether or not chemically defined: Other." Sigma-Tau appealed. On appeal, the U.S. sought classification in 2923 and Sigma-Tau argued for 2936, leaving 3824 out in the cold with no suitors.

This case is mainly complicated because it involves a fair amount of organic chemistry and a little medicine. The classification, on the other hand, gets resolved by applying General Rule of Interpretation 1, which is not how the Court of International Trade did it. That is an important point. The Federal Circuit took the CIT to task for moving beyond GRI 1 and applying the rule of relative specify under GRI 3. As we will see below, applying the legal text was sufficient to resolve the question.

The key here is Chapter 29, Note 3, which states that merchandise classifiable in two or more headings of Chapter 29 is to be classified in the heading that occurs last in numerical order. This Note has the force and effect of statute and must be followed. The only Chapter that is relevant on appeal is Chapter 29 and the last of the potential headings in numerical order is 2936, vitamins. Consequently, if this stuff is vitamins, then 2936 must be the correct Heading.

When a term is not defined in the tariff, the proper meaning is the common and commercial meaning. Where dictionaries and other sources of definitions differ, the court looks for the consensus understanding of the meaning, focusing on the commonality in the various definitions. A problem arose here because although the HTSUS allows for other vitamins and provitamins to be classified in Heading 2936, the Explanatory Notes provide less room to maneuver. The EN state that vitamins cannot be synthesized by the human body and, therefore, must be obtained from outside sources. Carnatine, it turns out, can be synthesized in the body, except for by newborns, who must consume it.

To me, this is the interesting point of the case. What should the Court do with the limitation in Explanatory Notes, which does not appear in the HTSUS? The Court noted that the Explanatory Notes are not binding on it. They are generally useful guides that are informative, but, according the to Court of Appeals, "we shall not employ their limiting characteristics, to the extent there are any, to narrow the language of the classification heading itself." This is consistent with a case called Archer Daniels Midland, which it is important to note, is an appeal I won on a similar point.

That created the question of whether this limitation is part of the common and commercial meaning. According to the Court, it is not. As a result, the fact that the human body can synthesize carnatine does not prevent it from being a vitamin. As evidence of that, the Court noted that vitamin D can be synthesized by the body and it is commonly understood to be a vitamin.

The Court arrived at a consensus definition of "vitamin" as compounds that are necessary for normal physiological function and that are not synthesized by the host in amounts adequate to maintain normal functioning.  It turns out that carnatine can be synthesized in adequate amounts by adults, but not by newborns. The government contended that the test should be limited to adults, but there was no such limitation in the common meaning of the term nor in any of the legal text. Consequently, the Federal Circuit found Carnatine to be a vitamin.

Having made that conclusion, it follows that the correct classification is in Heading 2936. Specifically, in the residual tariff item 2936.29.50. That means that the Court of International had to be reversed.

Saturday, September 24, 2016

The Scope of a Scope Ruling

This being the Customs Law Blog, I don't often wade into the related area of antidumping and countervailing duty law. But, the two areas often bump into each other for my clients and for other importers. Sometimes the issues are generally applicable and require attention, which is the case with Guangzhou Jangho Curtain Wall v. United States.

The important issue for our purposes is the impact of a scope clarification issued by the Department of Commerce. People often refer to these as scope rulings, and importers who are used to dealing with Customs and Border Protection rulings might make some incorrect assumptions about how they apply to imported merchandise. This case shows that the Department of Justice also had some incorrect assumptions about scope clarifications.

The order in question covers aluminum extrusions from China. The full scope is here. The scope specifically excludes finished merchandise. According to the order:

The scope also excludes finished merchandise containing aluminum extrusions as parts that are fully and permanently assembled and completed at the time of entry, such as finished windows with glass, doors with glass or vinyl, picture frames with glass pane and backing material, and solar panels. The scope also excludes finished goods containing aluminum extrusions that are entered unassembled in a "finished goods kit." A finished goods kit is understood to mean a packaged combination of parts that contains, at the time of importation, all of the necessary parts to fully assemble a final finished good and requires no further finishing or fabrication, such as cutting or punching, and is assembled "as is" into a finished product. An imported product will not be considered a "finished goods kit" and therefore excluded from the scope of the investigation merely by including fasteners such as screws, bolts, etc. in the packaging with an aluminum extrusion product.

In this case, the merchandise was curtain walls. A curtain wall system is commonly used as the exterior of a modern building. The curtain wall is not load bearing and merely blocks weather, adds design, and keeps people inside. The building is supported by structural elements in the core of the building. Often, curtain walls are glass with extruded aluminum members supporting the glass. If you have seen a modern skyscraper, you have seen a curtain wall.

Prior to this case, there had been two Commerce Department scope rulings on curtain walls. The first ruling held that curtain wall components are not finished goods for purposes of the scope exclusion. That decision was affirmed by both the Court of International Trade and the Court of Appeals for the Federal Circuit. The second ruling initially held that complete curtain wall systems sold pursuant to a contract for the entire system as also within the scope of the order. The CIT twice remanded that ruling to Commerce, and at the time of this decision, the issue remains before the CIT.

When Commerce announced the opportunity for the second administrative review of this order, Jangho requested review. At that time, whether complete curtain wall systems were within the scope of the order was (and still is) unresolved. Jangho responded to the questionnaire noting that it was doing so to cooperate, but stating that the curtain wall systems are outside the scope of the order. Jangho then pulled out of the process and did not participate any further. When Commerce finished the preliminary review, it found that Jangho's products are subject to the PRC-wide rate and did not explicitly address the scope issue. In the final determination, Commerce noted the scope question but held Jangho's products to be within the scope of the order because Jangho had not followed procedures to request a scope clarification. A similar result occurred in the countervailing duty case. Jangho appealed to the CIT.

Since we don't often talk about antidumping and countervailing duty law, we should review how this litigation is different from a customs case. First, the role of the CIT is to review the administrative decision on the agency record, rather than on the evidence presented to it. That means in ADD/CVD cases, there is no discovery, no testimony from witnesses, and no findings of fact. The judge must uphold the Commerce Department determination unless it is not supported by substantial evidence on the record or otherwise not in accordance with law. That is true even if he or she would have reached a different conclusion.

The first question before the Court was whether Commerce acted according to law when it held the curtain wall units to be within the scope of the order because of the lack of a scope clarification request from Jangho. The regulation on this is clear that when there is information indicating that a scope clarification is warranted, Commerce "will initiate" an inquiry. 19 CFR 351.225(b). That language does not give Commerce a lot of room to subject merchandise to ADD and CVD when it knows that there is a question as to whether the merchandise is within the scope of the order. Commerce knew there was a scope question and it did not self-initiate a scope inquiry.

What Commerce did was argue that Jangho was obligated to request a scope ruling. According to the Court of International Trade, that is not correct. Rather, an interested party can alert Commerce to a scope issue in the course of an administrative review. If Commerce determines that there is a genuine question, it must investigate the scope issue. That is what Jangho did when it requested review, was made a mandatory respondent, and then provided data while indicating that its curtain wall systems are outside the scope of the order. Thus, according to the Court, the Jangho was not obligated to initiate a formal scope inquiry through a separate request.

So far, so good. Now we get to the part that I think is most relevant to the average importer trying to be compliant. Many importers know that a classification, value, or other ruling issued by Customs and Border Protection is binding on Customs and on the requesting party for the subject merchandise. A ruling is technically not binding on another importer, even if the merchandise is similar. That does not mean that subsequent importers should not follow published rulings; it should. But, it does mean that the ruling is technically limited in scope.

In this case, the Department of Justice argued that a prior scope ruling covering curtain wall units imported pursuant to a contract for a full curtain wall was not applicable to the similar merchandise at issue in this case. According to Justice, that prior scope ruling (as modified by subsequent litigation) is only applicable to the requesting party. Looking at the regulations, the Court of International Trade found that scope rulings are applicable to merchandise, not to the company that requested the ruling. This is consistent with Commerce's ability to self-initiate an inquiry when it sees a scope question with respect to a particular product. Furthermore, the regulation allows interested parties to make scope requests with respect to "a particular product." As a whole, the regulations make it clear that scope rulings address products, not parties. In that way, they are different from Customs rulings which address specific merchandise imported by specific a specific party.

Commerce was wrong to hold this merchandise to be within the scope of the order. Jangho raised the question during the administrative review. From there, Commerce should have self initiated an inquiry. In completing that inquiry, Commerce should have taken note of applicable rulings issued on similar products. Having failed to do that, Commerce's determination was not in accordance with law and, therefore, was remanded. The Court did affirm a part of the administrative decision concerning window wall units on the grounds that Jangho failed to properly raise the issue and, therefore, failed to exhaust the administrative process.

Wednesday, September 21, 2016

Ruling of the Week 2016.19: Wherein A Christmas Tree is Not Festive

"Ruling of the week," who am I kidding? This one comes to you via an annoying slow GoGo In-Flight connection and an extremely small seat 10C on an American Airlines RJ700 bound for San Antonio. Read it with that in mind. It may not be my best work.

Welcome to fall, the time of year when retailers are filling their shelves with Halloween decorations and their warehouses with of Christmas goods ready to be unleashed on the shopping public. It is also a good time of year to revisit the question of when decorative items are classifiable as festive goods of Heading 9505 and, therefore, entitled to duty-free entry. That is exactly the question Mr. Christmas Inc. asked Customs and Border Protection to reconsider is HQ H258442 (Aug. 18, 2016). Seriously, the importer was Mr. Christmas. I did not make that up.

The merchandise is a set of tapered glass cones that are 13.5” tall and 3.5” at their widest. The cones contain randomly placed LED lights that are activated by switch located at the bottom of the base. The manufacturer ensures that LED lights are placed at the tip of each cone, to create a glow at the tip when the LED lights are on. The glass cones are sold in sets of three in one of the following colors: green, gold, red, silver, or blue.  Here is a picture taken from the ruling itself.

Stop right there. You tell me: Is that a Christmas decoration? Of course it is. How do I know? The same way I know pornography: I know a Christmas decoration when I see one. We have been down this road here and here.

Over the years, I have devised an essentially foolproof test for determining whether something is a festive article related to a Christian holiday. Just ask a rabbi. If the rabbi says, “I would never have that tchotchke in my home,” it is a festive article. I can pretty much guaranty that this item looks enough like a Christmas tree to keep it off the mantel at the rabbi’s house.

Sadly, that is not the law. According to Customs and Border Protection, to be classified in Chapter 95 as a festive article the item must be (1) closely associated with a festive occasion and (2) must be used or displayed principally during that festive occasion. This is not a low bar. In fact, the item must be so closely associated with the festive occasion that using during another time of year would be aberrant.

According to Customs, it would not be aberrant to display these glass cones at times other than Christmas. Keep in mind that they are sculptures of trees, lighted, and in sets of green, red, blue, silver, and gold. I am getting all festive just thinking about them. But, CBP noted that the cones lack indications of branches, leaves or other characteristics of trees. Moreover, the beading on the cone is not ball-shaped or otherwise indicative of Christmas tree ornaments and the interior lights do not stay in place to ensure that the tip of the “tree” is lighted. Consequently, the art critics at CBP determined that the cones do not closely resemble Christmas trees. Keep in mind that Customs previously ruled that a lighted penguin wearing a Santa hat was sufficiently associated with Christmas to be a festive article of Chapter 95.

Mr. Christmas argued that its (his?) marketing information showed that these cones are sold as Christmas decorations around the holiday. CBP dismissed this by noting contrary evidence and the fact that marketing is only one piece of evidence to be considered. One piece of contrary evidence was a QVC clip in which the designed or a similar item suggests that the cones are appropriate decorations year-round.

In the end, Customs was not convinced that the lighted tree sculptures are Christmas decorations. This is an admittedly subjective analysis and I know that CBP is required to draw lines around product classifications. I just think these items are on the festive side of that line. CBP classified them in 7013.99.90 as glassware at 7.2% ad valorem. My guess is that this may not be the last we see of these glass cones.

Tuesday, September 20, 2016

Return of the Blogger

Once upon a time, there was the Customs Law Blog. It was a happy place where the Blogger diligently provided useful and occasionally entertaining updates to his readers, all of whom he liked very much. But sometimes things did not go as planned. Sometimes, the Blogger needed to work. Even when "work" is mostly planning a big party for some visiting lawyers, talking to trade groups, and finishing a new version of his text book,  there is still real work to do for people who pay real bills. That leaves the Blog and its loyal readers with nothing new to read. That is, until the Blogger finds time. "Don't give up loyal readers," says the sad and tired Blogger, "I have something new for you and I'll post it soon."

Wednesday, August 24, 2016

Breaking News: Otter Products is Still Correct

You may know that one of the more closely watched appeals has been Otter Products, LLC v. United States in which the Court of International Trade previously overturned the tariff classification Customs and Border Protection assigned to covers for mobile devices. My original post on the case is here.

Customs classified the covers in HTSUS Heading 4202, which includes, among a large number of other things, suitcases, camera case, backpacks, and similar contains. The Court of International Trade held that mobile device covers are not "similar" to the exemplars listed in the heading and, therefore, could not be classified there. The principle reason supporting that conclusion was that none of the exemplars allow the user complete and functional access to the contents while in the container. To put it in colorful terms: I can't wear my socks when they are in a closed suitcase but I can use my device when it is in the OtterBox Commuter and Defender cases at issue. The alternative is to classify these products as "other articles of plastic" in Heading 3926. The applicable rates of duty are 20% for tariff item 4202.99.00 versus 5.3% for tariff item 3926.99.90.

The Federal Circuit has now affirmed. The decision is, in my opinion, close to perfect.

Looking to the legal text, the Court noted Chapter 39, Note 2(m), which states that Chapter 39 does not cover trunks, suitcases, handbags, and other containers of Heading 4202. That means that if the device covers are properly classified in 4202, they cannot be classified in 3926.

To fall within 4202, the covers must be "similar containers," meaning similar to trunks, suitcases, and other listed containers. To be fair, some of the listed containers are kinda, sorta similar to device cases including spectacle cases, tobacco pouches, and beverage bags. When trying to decide whether something is similar to the listed containers, the Court considers "the unifying characteristics" of the listed products and determined whether the imported item shares those characteristics and does not possess a "more specific primary purpose that is inconsistent with the listed exemplars." A number of prior decisions have identified the unifying characteristics of Heading 4202 as being the ability and purpose of "organizing, storing, protecting, and carrying various items."

Right out of the blocks [Metaphor alert: I must have recently watch too many hours of Olympic track.], the Federal Circuit determined that mobile device cases that provide continual, useful access to the enclosed device are not "containers" at all, let alone "similar containers." The point here is that the common definition of "container" includes examples of items such as boxes, crates, cans, and jars, all of which usually require some minimal effort on the part of the user to get to the enclosed item. The Court of International Trade noted that the device covers at issue, on the contrary, are designed to let the user get to and manipulate the device without opening the cover or removing the device. It is, however, easy enough to envision an open box, for example, permitting access and use of the enclosed item. Consequently, while important, neither the Federal Circuit nor the CIT ended its analysis with this point.

Next, the Court noted that the Commuter and Defender covers are not "similar" to the listed exemplars. Here, the real question was whether the test for "similar containers" required the container to have all four of the unifying characteristics or whether any one is enough. This was an open question and, in my view, a false dichotomy. The answer need not be one or the other in all cases. As the Federal Circuit eventually found, the proper analysis takes all the factors into consideration but applies them in the context of both the item to be classified and the text of Heading 4202. According to the decision:

We take this opportunity to clarify that there is no requirement that the subject merchandise meet all four characteristics to qualify as a “similar container” under Heading 4202.  Courts should consider the four characteristics collectively and then determine whether, in light of those considerations, the classification would lead to an inconsistency.  If, for example, an item met only one of the four characteristics, it almost certainly would not qualify as a “similar container” under Heading 4202.  Allowing a single factor to satisfy the inquiry would, in almost all conceivable scenarios, render the scope of “similar containers” so broad that it would lead to absurd results and make consistent application of the standard all but impossible.

Turning to those individual characteristics, the Federal Circuit first looked at whether the covers organize the devices. They do not. A phone on the table or in my pocket is just as organized as a phone in a case on a table or in my pocket.

Looking to "storage," the Court held that because the devices remain fully accessible and useable, the covers are not "storage" containers.

It was undisputed that the covers protect the devices.

Finally, the covers do not facilitate carrying the devices. The Court observed that, if anything, the device carries the case. Furthermore, when it comes to carrying the device, there is little difference between carrying the naked device and one in a cover. Thus, the covers do not "carry" the device.

The examination of the four factors did not end the analysis. The government argued that the CIT imposed an additional fifth factor that the item must be removed from use while in the container. The Federal Circuit disagreed. This was not a new factor. Rather, it was a recognition that the digital device covers have a characteristic and purpose that is inconsistent with the examples in 4202. That characteristic is that the enclosed device remains fully useable. That was not an error on the part of the CIT.

This is a really good decision, and not just for Otter Products. There are many importers with pending protests or summonses waiting for this decision. They should all be very happy. Moreover, this is an important decision because the Federal Circuit did not get tripped up by trying to create a simple black and white test composed of all four factors or of any one factor. Instead, the Court took a thoughtful approach to both interpreting Heading 4202 and applying that interpretation to the specific products at issue. It is possible to imagine a variety of mobile device covers that should properly stay in Heading 4202. They might have some sort of handle or a cover that needs to flip open to use the phone. By focusing on the particular items at issue, and recognizing that it is was not necessary to make one hard and fast rule for all possibilities, the Court avoided future problems and added clarity to the law.

Taking all of that into consideration, the Federal Circuit found the device covers to be classifiable in 3926 and affirmed the Court of International Trade.

A win is a win. A win that makes good law is even better. Congratulations to all involved. [Go ahead, click the link.]

Saturday, August 13, 2016

Zombie Protests and GSP

There have been a few cases of note that I have not yet reviewed. Call it Olympic Distraction Syndrome or Summer is Rapidly Ending Depression. Either way, I've read the cases so you don't have to.

First up, Zojirushi America Corp. v. United States, from the U.S. Court of International Trade. This case will go down in legal history as the genesis of Zombie Protests. You heard it here first.

Zojirushi is an importer of vacuum bottles and jars, home appliances, and housewares. It made several entries that Customs and Border Protection liquidated as entered. Zojirushi then protested the liquidation and asserted a claim for duty-free treatment under the Generalized System of Preferences. Customs, following its internal policy, "rejected" the protest as asserting a non-protestable claim.

This case is important and complicated enough to merit bold-face headings, a rarity in this blog.

Jurisdiction: 1581(a) or 1581(i)?

Usually, Customs will either approve or deny a protest. When it denies a protest, the protestant can bring an action to the Court of International Trade under 28 USC 1581(a). Absent a denied protest, the Court of International Trade will not be able to hear the case pursuant to 1581(a).

The alternative is to bring the case pursuant to 1581(i), which is the so-called residual jurisdiction of the CIT. It is applicable to cases involving the collection, administration, and enforcement of customs duties that are not properly the subject of a denied protest.  Because Customs rejected the protest rather than denying it, Zojurushi filed its case under (i). The problem for Zojirushi is that (a) and (i) are mutually exclusive and if it could have filed a case under 1581(a), then it cannot proceed under 1581(i).

The Court framed the issue as whether the GSP claim was properly protestable. If so, then jurisdiction is proper under 1581(a). If not, then (i) may be the proper avenue for the plaintiff. This is an important question because it goes to the heart of whether an importer can protest a no-change liquidation. After all, CBP liquidated the entry without GSP benefits because that is what the importer requested. If CBP did what the importer asked, why allow the importer to challenge Customs' decision? Is it fair to say that CBP made no decisions that can be protested?

Let's look at the law. Protestable decisions are defined in 19 USC 1514, which permits a challenge to "any clerical error, mistake of fact, or other inadvertence . . . adverse to the importer, in any entry, liquidation, or reliquidation, and, decisions of [Customs and Border Protection] . . . as to . . . the liquidation . . . of an entry . . . pursuant to . . . section 1500 of this title." According to the CIT, the protest in this case involved an inadvertence that is adverse to the importer. That would be the failure to assert the GSP claim. Furthermore, the inadvertence related to the entry and was reflected in the liquidation. On its face, the statute seems to make this a protestable decision.

The Department of Justice was not without arguments. Relying on Customs' regulation 19 CFR 10.172, Justice argued that a claim for GSP is only protestable if made at the time of entry. The Court disagreed. The regulation states, in part, that "If duty-free treatment is claimed at the time of entry" the claim is to be noted noted by appending the letter A to the HTSUS number. The "if" clearly implies that there are circumstances where the claim is not made at the time of entry. The regulation makes this explicit when it later says, "If duty-free treatment is claimed subsequent to the time of entry . . . ", other documentary requirements apply. This language was added in 1977 precisely to permit post-entry claims. Similar language is in a 1994 Treasury Decision.

Is there a Decision?

Getting to what I see as the meat of the debate, Justice argued that because there was no claim at the time of entry, Customs made no decision regarding GSP when it liquidated the entry. Without a decision to challenge, there can be no valid protest. To support this proposition, Customs relied on a ruling, HQ H193959 (Jul. 30, 2012). The ruling, while not a formal regulation, is entitled to judicial deference proportional to its "power to persuade."

The CBP ruling was based on two prior decision of the Court of Appeals for the Federal Circuit. In Xerox and Corrpro, the Federal Circuit said that under the applicable statutes and regulations, an importer cannot first assert a NAFTA claim in a protest. The question before the CIT is whether that principle applies to GSP claims. According to the CIT, the Federal Circuit did not go that far. In fact, the Federal Circuit explicitly said it was not suggesting that an as-entered liquidation can never give rise to a protest. The decision was limited to preferential claims under NAFTA. The ruling, therefore, was not persuasive.

Form this, the CIT concluded that the post-entry GSP claim can be first asserted in a protest. In other words, there is a protestable decision.

But, is there a Denied Protest?

Customs did not affirmatively deny the protest; it rejected the protest as invalid. Since 1581(a) requires a denied protest as the basis for jurisdiction, there is an issue of whether CBP's action constitutes a denial.

It is easy enough to conclude that what CBP did was not an allowance of the protest. Was it a denial?

This is where things turn ugly for the importer.

Let's assume it was a denial. In that case, the summons to the Court of International Trade would be due 180 days from the date of denial. In this case, the summons was filed beyond that date, but within the 2-year period allowed under 1581(i). If 1581(a) is the proper basis for jurisdiction the case is time barred.

But, CBP did not deny the protest. If it had, Customs would have followed the required procedures including providing a reason for the denial and notifying Zojirushi of its right to seek judicial review. Everything CBP did appears to have been calculated to communicate that no denial had occurred because the protests was simply rejected as not properly filed. Consequently, the rejection cannot be interpreted as a denial.

Where does that leave Zojirushi? Not without recourse. It turns out that a rejected protest is not exactly dead. But it is not quite alive either. It has not been denied but is not exactly pending either. I am certain that as far as CBP is concerned, the issue is decided and over. What we have here is The Walking Dead of Protests. But, unlike the walkers on TV, this one can be cured.

The law provides that whenever "a protest has not been allowed or denied in whole or in part," the protestant can force a decision by seeking accelerated disposition under 19 USC 1515(b). Under the much maligned decision in Hitachi, the protestant can do this any time, even after the 2-year period in which CBP was supposed to act.  Here, Customs has neither allowed nor denied the protest, that makes it open to accelerated disposition. If the protestant takes that route, it will likely have a denied protest after 30 days, and a ticket back to Court.

Because Zojirushi can get adequate relief under 1581(a), it cannot proceed under 1581(i). That means the case is dismissed but very much alive if Zojirushi demands accelerated disposition.

I am not a fan of the result in Hitachi, though I think it is legally correct. As a matter of policy, I think CBP should required to act on a protest within the 2-year period. If it can't do that, I think the importer deserves finality and the protest should be deemed granted. At a minimum, it should be deemed denied and open to judicial review. But, I am not Congress and that is not the law. The nice thing about this decision, is that it makes lemonade out of what I think of legislative lemons by finding a means for the protestant to get to Court when CBP. That is a good result.

Monday, August 08, 2016

Ruling of the Week 2016.18: A 1967 Ferrari in the HTSUS

We have been down this road before. When is a car so classic, so old, and so valuable that it ceases to be a car for purposes of tariff classification and is treated as a collector's piece of historical interest?

This time, in HQ H271385 (May 9, 2016), the question involves a 1967 Ferrari 275 GTS/4 NART Spyder. I think this is the model in question:

This particular vehicle is the second to last of 10 such vehicles ever produced. One sold at auction in 2013 for over $27 million. The commercial invoice used at the time of importation showed this vehicle having a value of $25 million.

From a classification perspective, there is no question that this is a car of Heading 8703. The question is whether it is also a collectors' piece of historical interest of Heading 9705. If so, Note 4 to Chapter 97 precludes classifying the vehicle in Heading 8703.

Clearly, this item is of great interest to collectors. That leaves open the question of whether that interest is "historical." Looking to dictionary definitions, Customs determined that an item is of historical interest if it relates to history or is concerned with past events. To be of historical interest, the item should be rare, old, and connected to a specific historical event, era, person, or other thing worthy of study. When applied to the "Ushabti of Neferhotep," for example, Customs found an ancient Egyptian statute to be classifiable in Heading 9705.

Turning to prior rulings involving cars, Customs noted that cars are generally mass-produced commercial goods, not collector's pieces of historical significance. Even when made in limited runs and promoted as collectors' items, mass-produced merchandise is not likely to classified in 9705 until it is both old and rare. So much for my collection of Green Lantern Happy Meal toys.

But, this car is both old and rare. Customs has previously classified some nearly-unique vehicles as collectors' items. Customs did so after considering many factors and cautions against concluding that an antique or classic car is necessarily a collectors' item.

But, seriously, look at this car. It is a $25 million, nearly one-of-a-kind, 1967 Ferrari. It was personally designed by Enzo Ferrari and was handmade by him and his design partner. Of course it is an item of historical interest. Someone at Customs and Border Protection, being both rational and apparently a bit of a car buff, reached the same conclusion. This is a collectors' piece of historical interest. It is entitled to duty free entry. By my math, that is a $62,500 win for the importer.