Wednesday, March 07, 2007

Notes on Use and Classification

I did not read The Da Vinci Code. I may be the only literate American who can say that. I did read The Historian, which is an apparently similar tale of following literary and historical clues to unravel an ancient mystery. In the case of The Historian, the mystery is the whether Vlad Tepes (better known as Dracula) still lives. It's an entertaining and engaging book that covers a lot of ground from the Cold War to East-West tensions.

Why is this relevant to customs law? Because tariff classification is really a matter of following the literary trail of rules through the Tariff Schedule along with the gloss applied by the Explanatory Notes, CBP rulings, and court decisions. In many ways, it is not all that complicated. The trick is finding all the applicable rules and applying them properly.

One question that has come up recently is the meaning of "use" in a tariff term. Here, again, the answer comes from finding the right rule. Additional U.S. Rule of Interpretation 1(a) states:

a tariff classification controlled by use (other than actual use) is to be determined in accordance with the use in the United States at, or immediately prior to, the date of importation, of goods of that class or kind to which the imported goods belong, and the controlling use is the principal use . . . .

Obviously, that is a clue that requires us to determine exactly what the heck "principal use" means.

One place to get that answer is rulings. Customs has pretty consistently held that principal use is the single use that exceeds all others in the United States for articles of the same class or kind at or immediately prior to the time of exportation. Take a look, for example, at HQ 84710. That means that if there are 30 uses for something and the most common use is only done 4% of the time, that is the principal use. This differs from chief use under the old tariff schedule, but there is no reason to drag that out of its casket to drive a stake into its heart.

This, of course, leads to the question of what is the appropriate class or kind of the merchandise. For that, look to court decisions. For example, in BASF v. US (starting at page 29) the issue was the principal use of a chemical used in the production of gasoline additives. In that case, the court held that when determining the class or kind of merchandise, the court should look to goods that are "commercially fungible." The court also noted a number of factors to consider including:
  • general physical characteristics
  • expectations of the ultimate purchaser
  • channels of trade
  • use in the same manner as merchandise that defines the class
  • the economic practicality of so using the product
  • recognition in the trade

So the critical things for a classification-by-use analysis are determining the class or kind into which the imports fall and then the most common use in the U.S. of that class or kind. What this means in a practical sense is hard to tell. It certainly means that the actual use of any given shipment is of marginal relevance. Clearly, the use of a single shipment (or even every shipment by a single importer) is some evidence of the use of the merchandise in the U.S.; but, it can't be the end of the story.

Rather, if you face a principal use issue, you need to look to industry practice and standards. You should try to gather supporting evidence from trade publications, catalogs, and other reliable sources. All of that is part of the backup to your classification determination and goes toward establishing reasonable care in your classification.

One other interesting tidbit on use: When a product is described by two or more headings, the General Rules of Interpretation require that the more specific heading prevail. By dint of judicial opinion, use provisions are generally (but not always) deemed to be more specific than eo nomine provisions. Go figure.


Nick Herndon said...

Larry, don't forget Clarendon. Although a narrowly tailored exception, it is an important one nonetheless, and absolves importers from having to prove "non-use" as the court calls it (i.e. an importer does not have to prove that it is NOT using a product in a certain way in order to satisfy the requirements of a given classification provision). It is also noteworthy in that an eo nomine provision wins out over both a principle-use and actual use provision, though the case itself is more a demonstration of poor legislative writing than it is the importance of eo nomine classification. Also, I'm pretty sure that Clarendon Marketing fell ass-backwards into this one and totally lucked out; if it were the other way around (if the duty rate for Naptha was higher and the duty rate for motor fuel lower) the onus would have been on Clarendon to give proof of actual use as a motor fuel blendstock. Certainly feasible, but an added burden, to be sure.
Anyway, the Federal Circuit opinion is a good read (especially because the judge calls into question Congress' writing ability).

p.s. awesome blog! As an import/Customs guy for a big oil company, I'll be checking in regularly.

Anonymous said...

Thank you (you know why). Bet you thought I wasn't reading.