Thursday, November 27, 2014

Alcan Can't Get Past GRI(1)

I am surprised to learn that I did not cover the Court of International Trade's classification decision in Alcan Food Packaging v. United States, because the Court of Appeals for the Federal Circuit has now affirmed that decision.

Like the last Ruling of the Week, Alcan is an important decision in that it counsels against the desire importers sometime have to jump to "essential character" or "relative specificity" to decide between two possible tariff classifications. You can't do that until you have fully exhausted the text of the headings and any relative chapter and section notes in the Harmonized Tariff Schedule of the United States.

In this case, the product is a packaging film made of a layer of aluminum foil and two or more layers of plastic. There is more plastic than aluminum but both materials are necessary for the material to perform its function. That function includes hermetically sealing U.S. military ready-to-eat meals.

Alcan, the importer, argued that the proper classification is in Chapter 76 as a product of aluminum. Customs and Border Protection disagreed and classified it as a product of plastic in Chapter 39. It got there based on essential character, but did so without ever leaving General Rule of Interpretation 1.

The relevant aluminum heading was 7606, which covers "[a]luminum foil (whether or not printed, or backed with paper, paperboard, plastics or similar backing materials) of a thickness (excluding any backing) not exceeding 0.2 mm: Backed: Other." The plastics heading was 3921, which covers "[o]ther plates, sheets, film, foil and strip, of plastics: Other: Flexible."

The Court acknowledged that the product is a composite consisting of both aluminum foil and plastic sheets. But, the Court found that there was no need to classify it as a composite good or otherwise resort to other classification rules. Rather, GRI 1 was sufficient to do the trick.

Heading 3921 covers plastic products that are backed, so it clearly includes combinations of plastic and other materials. So the combined product is within the scope of 3921. Similarly, Heading 7607 covers aluminum foil backed with, among other things, plastics. So, it appears that Heading 7607 also covers it.

But, Note 1(d) to Heading 7607 applies to aluminum that is coated, provided that the aluminum does not assume the character of an article of another heading, presumably including 3921. According to the Explanatory Notes, coating can include coating with plastic and lamination. That was all the Federal Circuit needed to affirm the decision of the Court of International Trade. The plastic, according to the Court, provides the essential character to the combined material. Consequently, the aluminum has assumed the character of an article of plastic. As such, it is excluded from Heading 7607.

Ruling of the Week 16: Shoe Sizing Kits, Who Knew?

I have mentioned before that one of the side effects of being a customs lawyer is exposure, directly and indirectly, to all sorts of strange and interesting products. Take, for example, the dance shoe sizing kit. The kit consists of several left shoes in a spectrum of sizes and a ruler for measuring feet. The shoes and the ruler are marked "Sample Not for Resale." The tariff classification for this kit was determined in NY N257784 (Nov. 18, 2014). The purpose of this kit is, as you might expect, is to solicit sales of dance shoes from potential customers in the U.S.

As is often the case in rulings issued by the NY office of Customs and Border Protection, there is not a lot of analysis in the ruling, just a result; which we will get to in due course.

The first question to ask is whether the shoes and rulers constitute a retail set that should be classified as a whole under General Rule of Interpretation 3(b). If so, the sample shoes and the sample rulers, if put up for retail sale would be classified as a whole based on the one article that imparts the essential character.

In this case, there are multiple shoes and only one ruler, so it is a not hard to find that the shoes represent the essential character.

But . . . I feel guilty for teasing a lesson on essential character out of this ruling. CBP did not need to get to that.

Rather, this is an eo nomine classification based upon the fact that everything in the kit is a sample and is properly marked as such. That means that the kit is classifiable as 9811.00.60, which provides for "any sample (except samples covered by heading 9811.00.20 or 9811.00.40), valued not over $1 each, or marked, torn, perforated or otherwise treated so that it is unsuitable for sale or for use otherwise than as a sample, to be used in the United States only for soliciting orders for products of foreign countries."

So, the real lesson of this ruling is not about retail sets or essential character. The real lesson is that more often than not classifications are determined based on General Rule of Interpretation 1, without resort to essential character, relative specificity, or other "tie breaking" rules. There is an eo nomine classification for samples that applies. End of story.

Sunday, November 23, 2014

The Tale of Tenacious and Sigma-Tau

I skipped a post on a prior case from the Court of International Trade called United States v. Tenacious Holdings, Inc., on the grounds that it seemed to be a one-off without a lot of general applicability. I appear to have been wrong. There is already a new case along similar line. That case is Sigma-Tau Health Science, Inc. v. United States.

Both cases involve a motion to have a case referred to Mediation. In Tenacious, the Court of International Trade granted the motion. In Sigma-Tau, the Court denied the motion.

As background, you need to understand that the Court of International has a process called Court Annexed Mediation under Rule 16.1. The idea is that before a case moves to a trial or motion for summary judgment, the judge assigned the case can ask a different judge to take a look at the case as a judge-mediator. The goal is to promote the settlement of cases. But, the process does not happen particularly often at the CIT. There may be lots of reasons for that, but in classification cases, it is hard to mediate between two opposing tariff classifications. The imported item is usually X or Y and there is no middle on which to settle. But, in penalty cases, mediation may be more useful. Also, the United States can settle cases involving the collection of lawfully owed duties. So, maybe there should be more mediation.

Tenacious was a penalty case brought by the United States to collect duties and penalties on improperly classified work gloves. The amount in controversy was relatively small and the 2009 tariff classification was no longer in use. Thus, any decision in the case would be non-precedential. Also, in a penalty case, it is largely up to the Court to decide whether the defendant acted negligently and to determine an appropriate penalty. Thus, the Court decided that the potential benefit of settlement outweighed any risks associated with mediation and the Court ordered mediation.

Sigmau-Tau is different. For starters, it is not a penalty case. Second, the amount in controversy is unknown and the decision will have precedential value. Given these facts, the Court found mediation to be more risky than its possible rewards and denied the motion.

I don't know enough about Sigma-Tau, to have a view on whether that is the right decision. This is entirely up to the discretion of the judge, so there really in no right decision. Nevertheless, it seems to be me that mediation may be a useful tool to move cases along by having a knowledgeable third party shine a little reality into the case.

Tuesday, November 18, 2014

NAFTA CO Clarification

I often run into questions about whether a NAFTA CO is acceptable backup for a NAFTA claim or to support another NAFTA CO. Here is what Customs and Border Protection has to say on the issue:

CSMS #14-000598

This posting seeks to clarify the meaning of the terms “valid NAFTA Certificate of Origin,”  “invalid NAFTA Certificate of Origin” and “defective NAFTA Certificate of Origin”.  Additionally, CBP reminds importers that preference will be denied when possession of a valid NAFTA Certificate of Origin at the time of the claim cannot be substantiated.

A NAFTA Certificate of Origin is valid if it:

1. Lists the good in question
2. Covers the period in question
3. Includes the exporter’s or his agent’s signature in block 11a “Authorized Signature”
4. Was in the importer’s possession at the time of the claim, as demonstrated by 1) a block 11e “Authorized Signature” date prior to the date of the preference claim, and 2) submission upon request of a CBP official

A NAFTA Certificate of Origin is invalid if it does not meet the aforementioned requirements.

A NAFTA Certificate of Origin is defective—and thus may be remedied in accordance with 19 CFR 181.22(c)—if, while meeting the conditions of a “Valid NAFTA Certificate of Origin,” above, contains other errors or omissions. These include, but are not limited to the following: illegibility, misclassification, incorrect or missing preference criteria, signature by an individual who cannot legally bind the company, typed or stamped signature, 3rd-country goods (in addition to NAFTA goods), Net Cost field error, single entry Certificate without an invoice or other unique reference numbers, or other similar errors or omissions.

In addition to defining the aforementioned terms, this CSMS posting serves as a reminder that NAFTA preference will be denied if the importer does not possess a valid NAFTA Certificate of Origin at the time of the preference claim.

Welcome to the Blogosphere

Jean-Marc Clement, a Canadian customs and trade expert with BCF in Montreal has started blogging from a Canadian perspective. Read his first entry here. It involves the tariff classification of swivel chairs and is an entertaining and interesting piece.

Sunday, November 16, 2014

Ruling of the Week 15: A Honey of a Problem

There is an antidumping duty order covering honey from China. That means that exporters and importers will look for clever ways to stay outside the scope of the order. Some of those will be legal; finding a new supplier in Vietnam, for example. Others will be decidedly illegal; like labeling honey as rice syrup. One interesting possibility is diluting honey until it is no longer 50% honey by weight. At that point, it is outside the scope of the antidumping duty order.

In this game of cat and mouse, Customs and Border Protection needs to continually find ways to identify the presence of honey and its origin. HQ H187175 (May 14, 2012) illustrates part of that problem.

The imported merchandise was reported as "honey and rice syrup mixture" from China. If the mixture is 50% by weight or honey, it is subject to antidumping duties. As entered, the goods were classified in HTSUS item 1702.40.40 as glucose and glucose syrup, containing in the dry state at least 20 percent but less than 50% by weight of fructose, excluding invert sugar: Blended syrups described in additional U.S. note 4 to chapter 17: other . . . other.

Custom sent a sample to its lab to determine the honey content of the mixture. The lab tested for the presence of C-4 plant sugar, which is derived from corn. Apparently, this makes sense as corn syrup is commonly used to dilute honey. Customs also applied Isotope Ration Mass Spectrometry. The report showed the presence of C-3 sugars. Honey is a C-3 sugar. The test also showed that the sample was not "adulterated" with C-4 (i.e., "corn based") sugars. Due to the absence of corn syrup, the lab concluded that the sample was more than 50% honey.

The problem for Customs is that rice sugar is a C-3 sugar, just like honey. That means that tests showing an absence of C-4 corn syrup does not automatically lead to the conclusion that the sample was mostly honey. Furthermore, the tests for C-3 sugar do not differentiate between rice syrup and honey. In fact, the importer claimed that the merchandise was more than 50% by weight rice syrup and, therefore, outside the scope of the antidumping duty order.

Customs took a second look at the sample. This time, Customs looked at it under a microscope to determine the amount of pollen and bee parts in the sample. Finding that the sample contained more pollen and bee parts than a reference sample of only 50% honey, Customs again found the merchandise to be within the scope of the antidumping duty order. The importer protested the conclusion.

In the ruling, Customs had to determine whether the lab tests were sufficiently reliable to support applying the antidumping duty order. The starting point for that analysis is that Customs is presumed to be correct. The importer has the burden of showing either that the results are wrong or that the methodology is unreliable. Here, the importer had an independent lab confirm that the chemical test does not distinguish between honey and rice syrup. Customs agreed to reject that methodology, leaving the question of the microscopy analysis.

Subsequent to Customs' laboratory analysis, a federal court in Florida addressed the same question under the Supreme Court's direction from a case called Daubert. Generally, Daubert requires district court judges to vet scientific testimony to ensure that it is based on the generally accepted scientific consensus. To do that, the judge is to look at criteria such as whether the methodology has been subject to peer review and is based on a falsifiable premise. In other words, is it scientifically rigorous?

In the Florida case, the district court determined that CBP's methodology did not satisfy the Daubert requirement for reliability. Furthermore, the Commerce Department had also previously recognized that it could not distinguish between honey and rice syrup, making the 50% by weight test "without meaning."

Consequently, Customs was left with no real choice other than to admit that it could not properly determine the amount of honey in the sample. Consequently, the protest was granted.

Friday, November 07, 2014

Quick Update

Having now read the second opinion in Puerto Rico Towing & Barge, I'll just say that I am not going to do a full recap. This is an effort to have the Court of International Trade change its original judgment in favor of the United States. The company raised a few points about alleged errors in the Court's prior analysis, but the Court did not see anything substantive there. So, the original decision stands.

My second quick update is to Rockwell Automation v. U.S., which is the case about the functioning of the Court of International Trade's Reserve Calendar. For background, read the original post here.

You will recall that an issue in the case is whether several motions for extensions of time to remain on the Reserve Calendar were timely. The relevant rule is Rule 83(d), which says:

(d) Extension of Time. The court may grant an extension of time for the case to remain on the Reserve Calendar for good cause. A motion for an extension of time must be made at least 30 days prior to the expiration of the 18-month period.  

In the last post, I posited that the 30-day prior notice provision might apply only to the first 18-month period in which the case is on the Reserve Calendar. If that is correct, then subsequent motions to extend are timely when made before the end of the Reserve Calendar even if within the 30-day window.

Now, the Court of International Trade has taken up the question. In this effort styled as an "Application for Clarification," counsel for Rockwell asked the Court resolve the matter. The Court noted the sparse history of the language in the rule and that members of the bar have expressed their view that the 30-day notice is limited to the first 18-month period. Consequently, the Court agreed that there is an issue. That issue is now before the Advisory Committee on Rules, "where the matter can be fully aired and any appropriate revisions to the Rules of the Court can be recommended in due course." So, that means wait and see what happens.

As is, the motion to extend was granted anyway, so this is a bit of sound and fury signifying the need for a useful clarification of the rules.

Thursday, November 06, 2014

Stuff I need to Do

I'm working on work which is making working on things that are not work, a bit of a chore (which would be work). I know I have a Jones Act case and a second look at the Reserve Calendar to cover. I promise to work on getting to that particular piece of activity which is not work even though it may appear to be work. Mostly, I hope my non-work effort makes your work less of a chore (which would still be work).

Where Was I? Ruling of "A" Week 14: Circuit Scrap

Ever wonder what happens to scrap printed circuit assemblies? They get mined for valuable metals, primarily for copper.

I know that because I read HQ  H218910 (Dec. 17, 2013).

The issue in the ruling is the classification of the scrap PCA's. They might reasonably be classified as waste and scrap of plastic (which is the substrate) or of metal. They might also be classified as various electronic components such as resistors or as electronic assemblies such as control boards.

Waste and scrap is not defined in the tariff schedule, but there are cases that address the concept. The Courts have collectively arrived at a definition of waste as material with no original value or no value for the ordinary or main purpose of manufacture. That means that lower grade or inferior products that are otherwise functional and saleable are not waste, they are just inferior. Think factory seconds or day old bread.

In the metals context, Note 8(a) to Section XV defines "waste and scrap" as “[m]etal waste and scrap from the manufacture or mechanical working of metals, and metal goods definitely not usable as such because of breakage, cutting-up, wear or other reasons.” Similarly, Chapter 71, Additional Note 1(c) says that metal waste and scrap is fit only for the recovery of raw materials. According to the Explanatory Notes, that includes waste and scrap of electronic circuit boards containing precious metal. So you can see where this is going.

The problem in defining these goods as waste metal is that the boards are plastic along with multiple metals. Extremely learned (but no relation) counsel for the importer provided Customs documentation showing that copper is the predominant metal by weight and is the target of the recovery operation. Copper waste and scrap is classifiable in HTSUS item 7404.00.60, which is where Customs put this merchandise.