As you probably know, some tariff classifications are based upon the use of the product. Additional U.S. Rule of Interpretation 1(a) provides that:
[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"Principal use" is the single use that exceeds any other single use. Traditionally, the Courts have not been too concerned with the use of the particular imported goods, but rather with the principal use of the class or kind of goods involved. This differentiates between a general "use provision" and a classification based upon "actual use." The Federal Circuit has refined that "class or kind" decision to "call for a determination as to the group of goods that are commercially fungible with the imported goods." The Court uses numerous factors from a case called United States v. Carborundum to determine what goods are commercially fungible with the imported goods.
First among the Carborundum factors is the actual use of the imported merchandise. This appears to have been a sticking point in this case. The United States argued that because this is not an actual use provision and the classification is to be based on the principal use of fungible goods, the actual use of these goods is irrelevant. The Court rejected this seemingly logical argument because, in effect, it went one step too far. The Federal Circuit noted that it had recognized the use of the goods as a relevant consideration in Carborundum. Further, the Court held that there is no harm in looking at whether the actual use of the imported goods is consistent with the proposed classification. The distinction, however, is that this inquiry is only one factor to be considered in the overall context of all the Carborundum factors. In contrast, in an actual use case, it would be the only factor.
Applying this factor, after some related evidence questions, the Court found that the imported merchandise was used primarily as a flavoring agent rather than as soup base. According to the Court, "this factor weighs heavily against classifying the flavorings as preparations for soups and broths."
From actual use, the Court moved on to the other Carborundum factors, which I will run through here just to be complete. Regarding physical characteristics, the Court found the fact that the imported product is in one of the many forms in which soup base is made to be insignificant. The Court next found that the relatively high cost of the imported merchandise weighed against Customs and Border Protection's classification as soup base. Looking at the remaining factors of expectations of the ultimate purchasers, channels of trade, environment of the sale, and recognition in the trade, the Court found nothing to distinguish the imported merchandise as soup base because both food preparations (i.e., the soup and flavoring agents) move in much the same trade and have overlapping characteristics. Given the actual use and high cost of the product, the Federal Circuit affirmed the classification as an other food preparation in heading 2106.
I think the focus on actual use is interesting and a good reminder. It is is an easy overstatement to tell an importer that actual use is irrelevant in principal use cases. Rather, as this case points out, it is relevant and should be considered along with all the Carborundum factors. That is important because the actual use or its own principal use is often the only evidence of use the importer has. An importer of methylethyleslimystuff ("MESS") knows and can prove that it makes rocket fuel from the stuff but might be completely oblivious to the fact that the company down the road makes breakfast cereal from the same MESS. Customs and Border Protection went too far when it argued that actual use was irrelevant and importers should keep that in mind, particularly when seeking binding rulings on products classified in use provisions.