Metalized Yarn and Tariff Engineering

Once again, the Court of International Trade has been asked to consider the status of apparel made from a synthetic yarn that includes zinc nanoparticles. This time, the decision is Lockhart Textiles Inc. v. United States. The decision ultimately turns on whether the yarn from which the apparel was made is of synthetic fibers or whether the addition of the zinc in the yarn production process makes it "metalized" and, therefore, an "other yarn." The result is significant. If the plaintiff's contention is correct, the apparel is classified in HTSUS item 6104.69.80, which carrier a rate of duty of 5.6%. If the United States is correct, the proper classification is 6104.63.20, which carries a rate of duty of 28.2%. 

I know this is not true, but I can't read about clothing made of metalized yarn without assuming it looks like something from the closet of a Star Trek alien or the original Robinson family from Lost in Space.

Reading this case, I was left with the question of why this product exists? There was no discussion of the physical characteristics that the inclusion of zinc would impart to the fabric. That made me wonder whether this was an exercise in tariff engineering in which the entire point was to save more than 22% in duty, which is significant. I don't know the answer, but it is clear that there are at least possible reasons to do this other than tariff avoidance. Here is a technical paper providing examples including possible flame retardant and antimicrobial effects. That said, the "why" is not at all important.

Which, brings me to an important side note. The U.S. Supreme Court denied the petition for certiorari in Ford Motor Company v. United States. This is the case involving the tariff classification of the Transit Connect. This vehicle was brought to the United States configured as a passenger van. After importation, Ford removed the rear seats and rear windows and made some addition changes to convert the vehicle to a a cargo van. CBP challenged the classification arguing that the practice was an impermissible "disguise or artifice." The Court of International Trade sided with Ford. The Court of Appeals for the Federal Circuit, however, took a different approach. It focused on the language of Heading 8703, which covers "Motor cars and other motor vehicles principally designed for the transport of persons . . . ." Based on the "designed for" limitation, the CAFC found that the heading implies a specific use as a vehicle to transport persons and that evidence of use is, therefore, relevant to the classification analysis. Finding that 100% of the relevant Transit Connects were pre-identified as destined for conversion to cargo vehicles, the CAFC revered the CIT and held that CBP had properly classified the vehicles in 8704 as cargo haulers. 

That is where things now sit. The difficulty is that we do not know the standard by which a future court is to weigh evidence of use in one of the chimera classifications that are not use provisions but suggest a use. Facts matter and the facts of the next similar case will matter.

Importantly, this case does not disrupt the long standing proposition that importers can design and structure products with the intent to achieve a lower rate of duty as long as the goods are properly presented to Customs without disguise of artifice. 

Which brings us back to metalized yarn.

This issue here comes down to how this yarn is made. It starts as any synthetic fiber would, as a slurry of polymerized molecules. Normally, that slurry would be turned to fibers by forcing through a "spinnerets." In this context, a spinneret is an industrial device that injects a tiny stream of hot liquid polymers into the air or a liquid where it solidifies into a fiber. Visitors to county fairs and circuses have seem a similar process in action at cotton candy stands. Arachnophobes have nightmares of the [trigger warning] biological equivalent.  Here, the zinc nanoparticles are added to the slurry and extruded at the time the fibers are formed. The fibers must then be spun to create yarn and the yarn knit to make fabric.

The plaintiff in this case argued that the relevant yarn is classifiable in 5605, which covers:

Metalized yarn, whether or not gimped, being textile yarn, or strip or the like of heading 5404 or 5405, combined with metal in the form of thread, strip or powder or covered with metal:

The plaintiff's contention is that as long as the end product is yarn combined or covered with metal, the yarn is classified in 5605. The government takes a narrower view and reads the heading as requiring that the yarn must first exist as yarn and only then be combined or covered with metal. 

To resolve this potential ambiguity, the Court looked to the Explanatory Notes and found two distinct descriptions of the product. The first describes textile yarn combined with metal thread or strip. The second describes textile yarns coved with metal. According to the Court, these two paragraphs describe two methods by which metal may be added to pre-existing textile yarns.

Plaintiff raised the interesting argument that the imported merchandise is a later developed form of the metalized yarn included in 5605. Because, an eo nomine classification covers all forms of the item including later developed forms, this makes some sense. The Court, however, held that this analysis unavailing because the language of the heading includes the specific indication that the yarn be covered or combined with metal, which is consistent with the notion that the yarn must exist before it is coated or covered with metal.

The Court, therefore, held that the yarn was not classifiable in 5605 and, therefore, the apparel was not knitted of "other textile materials." And, therefore, the judgment was for the United States.