The Federal Circuit has decided Archer Daniels Midland v. U.S. and reversed the Court of International Trade on the classification of a material known as deodorizer distillate or DOD. The merchandise is what remains after raw soybean oil is distilled to make it suitable for consumption and sale. If you make soybean oil, you cannot avoid producing some of this as a residue.
There were four classifications in play:
- Vegetable pitch
- Other products of the chemical or allied industries
- Residual products of the chemical or allied industries
- Waste of the chemical or allied industries
Personally, I am a big fan of the "pitch" argument. Pitch is the the sticky junk left after distilling vegetable matter. So is DOD. According to the Explanatory Notes, pitch is used in applications like waterproofing fabric, sealing roofs, etc. We latched on to the "etc." part and argued that even though DOD is not used in similar applications, it was still described by the common and commercial meaning of the term "pitch." The Court of Appeals disagreed.
Moving on, the Court found that DOD was clearly within the meaning of the term "residual product." Consequently, the issue was whether the Government's arguments to exclude it from Heading 3825 were persuasive. There were a couple arguments, but the primary one was that the Explanatory Notes to 3825 list five specific items and those are the only items intended to be covered by the subheading for "residual products."
The problem for the Government was two fold. First, the statutory language in the HTS has no limitation built into it. It just says "residual products." If it was intended to cover only five items, they should have been listed by name. Because there is no limitation, the subheading must mean something more than that. Second, the Explanatory Notes themselves are oddly written in that there is no explanation as to what to make of the list of examples. Is it exclusive or is it illustrative? There is not way to tell.
The Court decided to apply the language in the HTS without reference to the Explanatory Notes. That is consistent with a few prior cases including Airflow Technologies and Michael Simon Design. The CAFC reaffirmed its prior holdings that where the Explanatory Notes are inconsistent with the plain language in the tariff schedule, they get no weight.
Ignoring the Explanatory Notes, the most specific description of DOD is as a residual product, which is more specific than "chemical product." Hence, the Court of International Trade was reversed.
Personally, I am happy to see this decision. Not just for the client's sake. I also agree that we must be cautious about over reliance on the Explanatory Notes. The tariff must be interpreted in a way that maximizes the predictability and uniformity of classifications. I think that if Jane and Joe Importer are expected to be able to classify merchandise in the ordinary course of business, then the primary focus must be on the plain language of the HTSUS. Any interpretation that moves limitations or meaning into the tariff from the Explanatory Notes should be disfavored in the absence of a showing of ambiguity in the HTSUS.
I think this is particularly true because there is an inherent lack of transparency in that the Explanatory Notes are not publicly available without a paid subscription. If the Explanatory Notes are even remotely required for legal compliance, they should be made available to the public free of charge. [Are you with me? Do we storm Brussels with pitchforks and torches?] Reasonable care should not require an outlay of money just to know the rules. ADM, as part of a series of cases that refocuses the Court of International Trade on the text of the tariff schedule, therefore, is as much about soybean deodorizer distillate as it is about government transparency and the rule of law.
Or, I might just be happy about the outcome.