The Key to Classification
The tariff classification of assembled items is usually not that hard because the item has a single definable form and function even though it consists of multiple components. A refrigerator, for example, is a refrigerator despite also being a compressor, an evaporator, and other components. There are actually rules in the Harmonized Tariff Schedule that would lead you to that conclusion. Perhaps the refrigerator is a composite good to be classified based on essential character under General Rule of Interpretation 3(b). Perhaps it is a composite machine classified on the basis of principal function under Section XVI, Note 3. More likely, it is a machine composed of multiple components each contributing to a clearly defined function. Either way, we end up with the refrigerator being classified as a refrigerator, which is an eo nomine classification.
That kind of intuitive classification methodology by which we ignore some features and components to get to the result that seems most logical often feels like an efficient use of prior experience. Unfortunately, it can also lead to errors. The General Rules of Interpretation require that we follow the process, in order. We start with GRI(1) and determine whether the headings and legal notes produce a result before we move on to 3(b). What I did above, reversed that order.
Sometimes, though, we strain to classify based on GRI(1) when the text in not really that clear. This is the point the Court of Appeals for the Federal Circuit is making in Home Depot USA, Inc. v. United States. My post on the Court of International Trade decision is here.
The merchandise in question is entry knobsets from the Defiant line of products. These are interior knobs, exterior doorknobs with key cylinder, latch mechanism, strike plate, and mounting hardware. Customs & Border Protection classified them as door locks of 8301.40.60. Home Depot argued that they were better classified as base metal fittings of 8302.41.60. The CIT held in favor of the United States and classified them as locks. According to the Court, the knobsets are classifiable under GRI 1 and that the knobs are merely part of the locking mechanism. The Court also held that the knobsets do not constitute composite goods requiring the applicable of GRI 3. [Side note: I don't know how these items are packaged but it seems like someone should have asked whether they might be retail sets, though the outcome would be the same.]
This is an image of the Defiant Hartford knobset from the Home Depot website. It think it is a good illustration of what it at issue. There was no discussion in the case of the deadbolts (to the right), so I assume they were entered or classified separately.
The Court of Appeals first determined the scope of goods covered by Heading 8301. That Heading states:
Turning to the Heading 8302, the Court asked whether the knobsets are "fittings and similar articles suitable for . . . doors." Everyone involved acknowledged that non-locking door knobs and simple interior locking knobs are similar to fittings for doors. They are classifiable in 8302. Home Depot's position is that keyed exterior doors are, for classification purposes, no different. Looking for guidance in the Explanatory Notes, the Court found that 8302 clearly covers knobs separate from locks but that the Notes are unclear with respect to knobs containing locks.
The Court of Appeals found that keyed entry knobsets are not excluded from 8302. That sets up a situation in which 8301 and 8302 both prima facie include the subject merchandise. To resolve that conflict, the Court turned to GRI 3.
GRI 3(a) states that when two heading describe an item, the heading providing the more specific description prevails. But, this only works when both headings refer to the item as a whole. Recall that the knobset is "in part" a lock. That means 3(a) does not settle the classification.
GRI 3(b) addresses composite goods, which are combinations of different components that, as a whole, cannot be classified by the application of 3(a). Composite goods are classified according to the single material or component that imparts the essential character. So are retail sets.
When 3(a) and 3(b) fail, such as when no single material provides the essential character, the item is classified in the last tariff heading in numerical order. So says GRI 3(c).
Here, the Court held 3(a) to be inapplicable because neither the description as fittings nor as locks describes the whole item. In particular, the Federal Circuit rejected the holding of the CIT that the knobs are part of the locking mechanism in that they facilitate turning the latch. Instead, the Court held that the classification requires the application of GRI 3(b) to determine which component, the knob fitting or the lock, provides the essential character.
That determination is a question of fact. Here, there are not sufficient undisputed facts to allow the Federal Circuit to classify this product. Consequently, the Court remanded the case back to the CIT for further proceedings. Essential character is determined on a number of factors including the relative value of parts, the bulk and quantity of parts, and the role the parts play in the use of the product. That will now have to be explored in more detailed to permit the CIT to make a decision on the classification of keyed entry knobsets.
That kind of intuitive classification methodology by which we ignore some features and components to get to the result that seems most logical often feels like an efficient use of prior experience. Unfortunately, it can also lead to errors. The General Rules of Interpretation require that we follow the process, in order. We start with GRI(1) and determine whether the headings and legal notes produce a result before we move on to 3(b). What I did above, reversed that order.
Sometimes, though, we strain to classify based on GRI(1) when the text in not really that clear. This is the point the Court of Appeals for the Federal Circuit is making in Home Depot USA, Inc. v. United States. My post on the Court of International Trade decision is here.
The merchandise in question is entry knobsets from the Defiant line of products. These are interior knobs, exterior doorknobs with key cylinder, latch mechanism, strike plate, and mounting hardware. Customs & Border Protection classified them as door locks of 8301.40.60. Home Depot argued that they were better classified as base metal fittings of 8302.41.60. The CIT held in favor of the United States and classified them as locks. According to the Court, the knobsets are classifiable under GRI 1 and that the knobs are merely part of the locking mechanism. The Court also held that the knobsets do not constitute composite goods requiring the applicable of GRI 3. [Side note: I don't know how these items are packaged but it seems like someone should have asked whether they might be retail sets, though the outcome would be the same.]
This is an image of the Defiant Hartford knobset from the Home Depot website. It think it is a good illustration of what it at issue. There was no discussion in the case of the deadbolts (to the right), so I assume they were entered or classified separately.
The Court of Appeals first determined the scope of goods covered by Heading 8301. That Heading states:
Padlocks and locks (key, combination or electrically operated), of base metal; clasps and frames with clasps, incorporating locks, of base metal;The Court concluded that the locking mechanism in these knobsets is "operated" by a key. From there, the Court held "that the subject articles consist in part of 'key-operated lock.'" Note the "in part," that will be important later.
Turning to the Heading 8302, the Court asked whether the knobsets are "fittings and similar articles suitable for . . . doors." Everyone involved acknowledged that non-locking door knobs and simple interior locking knobs are similar to fittings for doors. They are classifiable in 8302. Home Depot's position is that keyed exterior doors are, for classification purposes, no different. Looking for guidance in the Explanatory Notes, the Court found that 8302 clearly covers knobs separate from locks but that the Notes are unclear with respect to knobs containing locks.
The Court of Appeals found that keyed entry knobsets are not excluded from 8302. That sets up a situation in which 8301 and 8302 both prima facie include the subject merchandise. To resolve that conflict, the Court turned to GRI 3.
GRI 3(a) states that when two heading describe an item, the heading providing the more specific description prevails. But, this only works when both headings refer to the item as a whole. Recall that the knobset is "in part" a lock. That means 3(a) does not settle the classification.
GRI 3(b) addresses composite goods, which are combinations of different components that, as a whole, cannot be classified by the application of 3(a). Composite goods are classified according to the single material or component that imparts the essential character. So are retail sets.
When 3(a) and 3(b) fail, such as when no single material provides the essential character, the item is classified in the last tariff heading in numerical order. So says GRI 3(c).
Here, the Court held 3(a) to be inapplicable because neither the description as fittings nor as locks describes the whole item. In particular, the Federal Circuit rejected the holding of the CIT that the knobs are part of the locking mechanism in that they facilitate turning the latch. Instead, the Court held that the classification requires the application of GRI 3(b) to determine which component, the knob fitting or the lock, provides the essential character.
That determination is a question of fact. Here, there are not sufficient undisputed facts to allow the Federal Circuit to classify this product. Consequently, the Court remanded the case back to the CIT for further proceedings. Essential character is determined on a number of factors including the relative value of parts, the bulk and quantity of parts, and the role the parts play in the use of the product. That will now have to be explored in more detailed to permit the CIT to make a decision on the classification of keyed entry knobsets.
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