The "Treatment" of Bicycle Seats

The Court of Appeals for the Federal Circuit has pedaled into the controversy over the classification of children's bicycle seats. In this context, that means extra seats that can be attached to a bicycle to carry a child as a passenger, as opposed to seats (or "saddles" for children's bicycles). The underlying dispute is whether such seats are classifiable as seats of Heading 9401 (duty free) or as bicycle accessories of 8714.99.8000, which are subject to a 10% rate of duty.

The CAFC opinion in Kent International, Inc. v. United States is, however, not about the classification itself. Rather, it is about what to make of Customs' handling of entries of this merchandise and whether that handling constitutes a legally enforceable "treatment."

Kent, it appears, is an importer trying to do this right. In 2005 it received a binding ruling from CBP stating that the seats should be classified as bike accessories in Heading 8714. After that, including between August 2008 and November 2010, Kent made entries through the Port of New York and reported 8714 as the correct heading. After noting in 2008 that CBP classified competitors' goods in Heading 9401, Kent filed protests seeking the same classification. CBP approved those protests and reliquidated Kent's entries under 9401. Kent then went one step further and in 2011 ask CBP to revoke the prior ruling as inconsistent with the treatment of the entries in New York. Following the still binding ruling, Kent continued to make entry under Heading 8714 and filed protests seeking classification in 9401. Customs in NY stopped granting the protests pending further review. 

While all this was happening in NY, Kent started making entries in Long Beach, still applying 8714, consistent with the binding ruling. Long Beach liquidated those entries without change and with no comment. They were "bypass" entries, which Customs liquidates on the representation by the importer. Kent protested those liquidations as well. Customs denied all the Long Beach protests. 

Customs then doubled down. First, it formally revoked its prior decision to classify the competitors' merchandise in 9401. Then, it denied Kent's request that the CBP revoke the 2005 ruling. As far as CBP was concerned, that should have clarified everything and reset the status quo to 8714.

The Court of International decided that the correct classification is in Heading 8714. Kent did not appeal that determination. We covered that decision here.

What Kent did appeal is whether CBP is bound by law to classify seats entered between 2008 and 2010 in 9401 to be consistent with its treatment of entries or its prior Established Uniform Practice (EUP). 

The argument around a treatment follows from 19 USC § 1625(c) which states:

A proposed interpretive ruling or decision which would—

(1) modify (other than to correct a clerical error) or revoke a prior interpretive ruling or decision which has been in effect for at least 60 days; or

(2) have the effect of modifying the treatment previously accorded by the Customs Service to substantially identical transactions;

shall be published in the Customs Bulletin. The Secretary shall give interested parties an opportunity to submit, during not less than the 30-day period after the date of such publication, comments on the correctness of the proposed ruling or decision. After consideration of any comments received, the Secretary shall publish a final ruling or decision in the Customs Bulletin within 30 days after the closing of the comment period. The final ruling or decision shall become effective 60 days after the date of its publication.

This means that where Customs has "previously accorded" a "treatment" to certain merchandise, it cannot change that treatment without a formal notice and comment process. There was no such process here. So, if CBP accorded a "treatment" to these goods and that treatment was to classify them as seats of Heading 9401, then Kent is entitled to a refund for the period of the treatment until it was revoked formally.

The statute does not define a treatment or state how an importer can show that a treatment has been accorded. That is left to the regulations at 19 CFR § 177.12(c)(1)(ii). There are several elements an importer must show to establish a "treatment." Those include:

• An actual determination by Customs
• The Customs officer making that determination was responsible for the subject matter
• Customs had applied the determination consistently over a two-year period immediately preceding the claim of the treatment

An important caveat is that when deciding whether there is a binding treatment, "Customs will give no weight whatsoever to informal entries and to other entries or transactions which Customs, in the interest of commercial facilitation and accommodation, process expeditiously and without examination of Customs officer review." 

The government argued that no treatment had been established because Customs had not consistently liquidated the entries. The reasoning behind this has to do with an apparent difference between establishing the requisite treatment and applying that treatment. If liquidations, even bypass liquidations, are included, then the treatment would not be consistent. Therefore, no notice and comment would be necessary to undo it.

The Court of Appeals would have none of that. Rather, it stated that "A plain reading of the regulation supports Kent's position." According to the Court, when a regulation states that Customs will give no weight whatsoever to an entry that Customs processed expeditiously, that includes bypass entries. A treatment requires that Customs take a conscious, intentional and knowledgeable action. That is not what happens when an entry is "bypassed" for processing. Here, the actual determinations after conscious deliberation include the entries that were protested in NY on which CBP approved the protests seeking liquidation under Heading 9401. 

Because the CIT had included the bypass entries in its consideration of whether a treatment had been established, the Federal Circuit remanded this case back to the CIT for additional consideration. On remand, the CIT will also have to consider when the relevant two-year period began to run. 

A final issue in this case was whether the CIT had properly rejected Kent's argument that Customs' actions had created a de facto established and uniform practice, or "EUP." Under 19 USC § 1315(d), with exceptions: 

No administrative ruling resulting in the imposition of a higher rate of duty or charge than the Secretary of the Treasury shall find to have been applicable to imported merchandise under an established and uniform practice shall be effective with respect to articles entered for consumption or withdrawn from warehouse for consumption prior to the expiration of thirty days after the date of publication in the Federal Register of notice of such ruling . . . .

Like a treatment, one of the requirements for an EUP is that there be a uniform practice. On review, the Court of Appeals will only overturn the CIT's findings with respect to the existence of an EUP is the lower court has clearly abused its discretion. Given the oddly inconsistent treatment afforded bicycle seats, the Court of Appeals found no abuse of discretion and let that part of the CIT decision stand.