Thursday, May 13, 2010

The Straw that Broke the Camelbak

For my buddy Lowell, I am tagging this entry as "Cycling."

The Court of International Trade has ruled that a hydration system worn on the back while engaged in physical activity such as cycling is, for all intents and purposes, a backpack. Let's see how it got there.

The merchandise consisted of Camelbak-brand hydration systems. These clever products are liquid reservoirs and a delivery tube mounted in a backpack. Here is an example, which may not have been involved in the actual case. The thirsty cyclist or other athlete can sip fluids from the reservoir via the tube and a valve. As you can see, the hydration system also holds cargo, as would an ordinary backpack.

The question in Camelbak Products v. United States, was whether for tariff classification purposes the hydration systems are "traveling bags" or "sport bags," on the one hand, or are "insulated food or beverage bags" on the other hand. Both possible classifications are in HTSUS heading 4202. Thus, the General Rules of Interpretation are applied at the subheading level in this case. If that does not make sense to you, see GRI 6.

I'm going to cut through a lot of stuff and get to the point. The Government contends that the Camelbak is a fancy backpack and that adding a possibly insulated bladder [note: there is a question regarding insulation] does not make it something else. Camelbak contends that the tariff item for sports bags does not fully describe the hydration system because it fails to take into account the insulated bladder. According to Camelbak, the proper analysis is to treat the product as a composite good (GRI 3) and determine the essential character. Camelbak thinks the essential character is the hydration portion, not the cargo portion.

The Court agreed with the Government that the Camelbak is just a fancy backpack. The Court drew an analogy to a car and noted that fancy cars remain classifiable as cars, which is unimpeachable. A car is no less a car because it contains an air conditioner, a radio, and a DVD entertainment system. The question is why is that the case? I think that if we really think hard about that question, it is not simply that the machine is fully described as a car. Rather, it strikes me that we all intuitively know that neither the air conditioner nor DVD player impart the essential character to the car. The ultimate function of the car is to provide transportation. Anything else is non-essential.

I don't think it is as easy to dismiss the bladder in a Camelbak. If I wanted to buy a backpack, I would go buy one. If I want a hydration system, on the other hand, I would go buy a Camelbak. In that case, the cargo carrying components of the Camelbak might be incidental (or at least non-essential). I don't know how that question would turn out. It would, however, be interesting to know the relative value of the components and whether there is any evidence relating to the use of each part by the end consumer. Then, we could do an explicit GRI 3 analysis and see where we end up.


Wizard said...

I'm with you! I have a Camelbak. It would serve NO purpose without the water. Maybe we need to take the government attorneys and the court for a 20 mile run in the 90 degree summer sun. Half of them can wear the Camelbak without the hydration bladder and the other half can have the Camelbak with the water.

Anonymous said...

The analogy which Judge Ridgeway used to automobiles was interesting. Perhaps before making such analogies she should more carefully examine previous CIT decisions. It was not all that long ago that the Court ruled that Nissan Pathfinders with four doors are passenger vehicles, while those with two doors are trucks.

philstrailgnome said...

To Wizard - You can look at it from the opposite perspective too, that the reservoir would do you little good on a run without the backpack, so arguing to separate them is fruitless. Unfortunately for Camelbak, they tried to bring their "backpack/hydration system" in under HTS codes that only take into account the reservoir portion, thereby saving themselves 10% in duty. Valiant effort, however they got caught.

Joachim Metzner said...

I fully agree what Mr. Friedman said: It is just the fact that we intuitively know that a car may have an air conditioner and some other things. But why do we get the result "car"? Because of the correct application of GRI 3. If we have a car with an air conditioner, a radio and a TV system (including a DVD player), which question do we have to ask if we classify it scholastically? We have an article, which consists of several components:

A car (including all relevant parts), an air conditioner, a radio, a DVD player and one or more displays. In most cases we also have a set of tools.

Therefore, we have an article, consisting of different components, which by themselves have to be classified under different headings. The typical case for an application of GRI 3. GRI 3a (most specific description) is not applicable as all different headings refer to part only of the complete article. Therefore, those headings are to be regarded as equally specific. As a next step GRI 3b (essential character) has to be checked and I think that it is clear that the car is the component which gives the whole its essential character.
Following this scholastic way, we also have to ask the same questions for the classification of the Camelbak. From my point it was this little "intuitive" mistake, which led the Court to the wrong findings. As I did not check the whole facts I do not know whether the final result must inevitably be different. But this is not the question. A judgment is as good as its reasons!
By the way: The EU customs tariff has a so-called “Additional Note” to Section XVII, which reads as follows:
“1. Subject to the provisions of additional note 3 to Chapter 89, tools and articles necessary for the maintenance or repair of vehicles, aircraft or vessels are to be classified with those vehicles, aircraft or vessels if presented with them. Other accessories presented with vehicles, aircraft or vessels are also to be classified therewith, if they form part of the normal equipment of the vehicles, aircraft or vessels and are normally sold with them.”
From my point of view, this note proves that the scholastic way of classification is correct: The tools and other accessories have to be considered during classification. Insofar it is irrelevant whether the consideration is made by application of GRI or of Additional Notes.

Anonymous said...

I had a Camelback that had no storage. I bought it because I needed a hydration system. If I were buying a Camelback with room for stuff, I would be buying it because it carried stuff, not water.

Larry said...

For Anonymouns, I disagree. I don't think anyone would ever buy a Camelbak just to carry stuff. If you were buying a Camelbak with storage, you would still be buying it because of the hydration system. Otherwise, you would save money and get more storage space by buying a backpack.