Classification Litigation Can be Complex
Samsung International, Inc. v. U.S. proves that point. If you are interested in Samsung litigation that does not involve Apple, read on.
At its base, this is a case about whether plasma televisions and video monitors made in Mexico are entitled to be treated as originating under the North American Free Trade Agreement. If so, they may enter the United States free of duty and merchandise processing fee. The problem for Samsung is that the imported units include an assembly from Korea that consists of a plasma flat panel and various support electronics. Under the relevant NAFTA rules of origin, if that non-originating Korean assembly is classifiable as a "flat panel screen assembly" of 8529.90.53 in the HTSUS, then it fails to satisfy the tariff shift requirement of the NAFTA rule of origin.
So, the question is whether two specific configurations of subassemblies are FPSA's. It turns out that is a complicated question because FPSA is not defined in the tariff nor in the relevant Explanatory Notes. Tariff classification is always a two-step process. First, the Court must determine the meaning of the tariff terms. Only when the meaning of the tariff terms has been determined can the Court move on to step two, which is to apply to tariff language to the imported merchandise.
The parties and the Court of International Trade were not without guidance as to the meaning of FPSA. In HQ W967693 (Oct. 12, 2006)(the "Pioneer Ruling"), Customs and Border Protection adopted a definition of FPSA put forth by a NAFTA working group. According to the working group, an FPSA is "an assembly consisting of at least drive electronics, control electronics and a display device, other than LCD technologies."
This raises the issue of whether, and to what extent, the NAFTA working group definition should influence the Court of International Trade's interpretation of the term "flat panel screen assembly." In most case, when tasked with interpreting a tariff term, the Court of International Trade will turn to dictionary definitions, scientific texts, and "other reliable sources." In this case, the parties relied on the definition from the NAFTA working group and the Court agreed that it is a "reliable source." This was based in part on the fact that the definition is consistent with the language of the HTSUS and was formulated by experts in tariff classification. Thus, for purposes of this decision, the Court found that an FSPA is a part of a television set or video monitor that consists of at least drive electronics, control electronics and a display device, other than LCD technologies."
One important point the Court made should not be lost. In discussing the role of expert witnesses in tariff classification, the Court acknowledged that it may receive expert opinions with respect to the meaning of tariff terms. See footnote 18 in the opinion. In this case, the expert is not providing facts. Rather, the expert is providing an opinion as to the common meaning or understanding of a term. An expert opinion on the meaning of a tariff term, however, is advisory and given weight only to the extent it is consistent with the lexicographic and other reliable sources. If you are close to customs litigation, you should keep this notion in mind. It goes to the heart of how experts should be used in customs litigation and the degree of uselessness of fights over the scope of expert opinion on the meaning of a tariff term.
Another important point is that the Court extended Skidmore deference to the Pioneer ruling. Under Skidmore deference, the Court of International Trade will defer to a decision made by Customs and Border Protection to the extent that decision has the power to persuade the Court. In this case, the Pioneer ruling was subject to public notice and comment, which is indicative of persuasiveness. Nevertheless, the Court did not adopt Customs' the definition of drive and control electronics "in toto." Rather, the Court considered the definitions "to some extent." This point is important in that it shows that Skidmore does not require the Court to fully adopt Customs' interpretations of the law even though the Court can take them into consideration. In other words, Skidmore deference is not all or nothing.
In the remainder of the opinion, the Court sorted through the meaning of the terms "drive electronics," and "control electronics." In both cases, the Court relied heavily on both common dictionaries and technical dictionaries. The Court also reviewed inconsistencies in how the parties and their various witnesses used terms. The Court of International Trade held that drive electronics supply a signal or electrical current to another device in order to activate or run it. Control electronics accept a signal and process that signal in some way, such as translating instructions in the signal and implementing the instructions in some other subsystem or device.
Having arrived at those definitions, the Court of International Trade went on to step two of the case and applied them to the facts. Looking at the two modules at issue, the Court found that each satisfies its requirements to be classified as an FSPA. Consequently, the non-originating components failed to satisfy the NAFTA tariff shift requirement and the imported products were not entitled to duty-free entry under the NAFTA.
At its base, this is a case about whether plasma televisions and video monitors made in Mexico are entitled to be treated as originating under the North American Free Trade Agreement. If so, they may enter the United States free of duty and merchandise processing fee. The problem for Samsung is that the imported units include an assembly from Korea that consists of a plasma flat panel and various support electronics. Under the relevant NAFTA rules of origin, if that non-originating Korean assembly is classifiable as a "flat panel screen assembly" of 8529.90.53 in the HTSUS, then it fails to satisfy the tariff shift requirement of the NAFTA rule of origin.
So, the question is whether two specific configurations of subassemblies are FPSA's. It turns out that is a complicated question because FPSA is not defined in the tariff nor in the relevant Explanatory Notes. Tariff classification is always a two-step process. First, the Court must determine the meaning of the tariff terms. Only when the meaning of the tariff terms has been determined can the Court move on to step two, which is to apply to tariff language to the imported merchandise.
The parties and the Court of International Trade were not without guidance as to the meaning of FPSA. In HQ W967693 (Oct. 12, 2006)(the "Pioneer Ruling"), Customs and Border Protection adopted a definition of FPSA put forth by a NAFTA working group. According to the working group, an FPSA is "an assembly consisting of at least drive electronics, control electronics and a display device, other than LCD technologies."
This raises the issue of whether, and to what extent, the NAFTA working group definition should influence the Court of International Trade's interpretation of the term "flat panel screen assembly." In most case, when tasked with interpreting a tariff term, the Court of International Trade will turn to dictionary definitions, scientific texts, and "other reliable sources." In this case, the parties relied on the definition from the NAFTA working group and the Court agreed that it is a "reliable source." This was based in part on the fact that the definition is consistent with the language of the HTSUS and was formulated by experts in tariff classification. Thus, for purposes of this decision, the Court found that an FSPA is a part of a television set or video monitor that consists of at least drive electronics, control electronics and a display device, other than LCD technologies."
One important point the Court made should not be lost. In discussing the role of expert witnesses in tariff classification, the Court acknowledged that it may receive expert opinions with respect to the meaning of tariff terms. See footnote 18 in the opinion. In this case, the expert is not providing facts. Rather, the expert is providing an opinion as to the common meaning or understanding of a term. An expert opinion on the meaning of a tariff term, however, is advisory and given weight only to the extent it is consistent with the lexicographic and other reliable sources. If you are close to customs litigation, you should keep this notion in mind. It goes to the heart of how experts should be used in customs litigation and the degree of uselessness of fights over the scope of expert opinion on the meaning of a tariff term.
Another important point is that the Court extended Skidmore deference to the Pioneer ruling. Under Skidmore deference, the Court of International Trade will defer to a decision made by Customs and Border Protection to the extent that decision has the power to persuade the Court. In this case, the Pioneer ruling was subject to public notice and comment, which is indicative of persuasiveness. Nevertheless, the Court did not adopt Customs' the definition of drive and control electronics "in toto." Rather, the Court considered the definitions "to some extent." This point is important in that it shows that Skidmore does not require the Court to fully adopt Customs' interpretations of the law even though the Court can take them into consideration. In other words, Skidmore deference is not all or nothing.
In the remainder of the opinion, the Court sorted through the meaning of the terms "drive electronics," and "control electronics." In both cases, the Court relied heavily on both common dictionaries and technical dictionaries. The Court also reviewed inconsistencies in how the parties and their various witnesses used terms. The Court of International Trade held that drive electronics supply a signal or electrical current to another device in order to activate or run it. Control electronics accept a signal and process that signal in some way, such as translating instructions in the signal and implementing the instructions in some other subsystem or device.
Having arrived at those definitions, the Court of International Trade went on to step two of the case and applied them to the facts. Looking at the two modules at issue, the Court found that each satisfies its requirements to be classified as an FSPA. Consequently, the non-originating components failed to satisfy the NAFTA tariff shift requirement and the imported products were not entitled to duty-free entry under the NAFTA.
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